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CBN to continue ‘Naira 4 Dollar’ scheme until further notice
The Central Bank of Nigeria says it will continue the Naira 4 Dollar Scheme until further notice. Meanwhile, Nigeria’s first quarter GDP report is expected on the 24th of this month according to the publishing calendar of the National Bureau of Statistics. So, can Nigeria sustain its growth momentum after exiting recession in the fourth quarter of 2020? Lukman Otunuga, Senior Research Analyst at FXTM Market joins CNBC Africa for more.
Thu, 06 May 2021 12:26:22 GMT
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AI Generated Summary
- The Nigerian economy shows signs of improvement with the availability of COVID-19 vaccines, falling COVID cases, and rising oil prices, but challenges such as inflation, unemployment, and foreign exchange pressures persist
- The Central Bank of Nigeria faces the dilemma of addressing inflation while supporting economic growth, with Q1 growth estimates indicating a fragile recovery following the exit from recession in Q4 2020
- Foreign Direct Investment is crucial for Nigeria's economic firepower, but perceptions of foreign investors and the need for fiscal reforms pose challenges to sustainable economic growth
The Central Bank of Nigeria recently announced that it will continue the Naira 4 Dollar scheme until further notice, in an attempt to stabilize the country's economy. With Nigeria's first quarter GDP report due on the 24th of this month, many are questioning the sustainability of the country's growth momentum after exiting recession in the fourth quarter of 2020. Senior Research Analyst at FXTM Market, Lukman Otunuga, shares insights on the economic indicators and the challenges facing Nigeria's road to recovery. The economic outlook for Nigeria appears to have brightened with the quick availability of COVID-19 vaccines, a decline in COVID cases, and the surge in oil prices. The International Monetary Fund has raised its growth forecast for Nigeria to 2.5%, indicating a positive trajectory for the country's economy. However, challenges such as inflation, unemployment, and foreign exchange pressures continue to threaten the fragile recovery. Inflation in Nigeria has been a point of concern, with a spike to 18.77% in March marking 19 consecutive months of increase. Despite debates on whether this inflation is transient or persistent, supply side disruptions and output shocks suggest a prolonged period of high inflation. This puts the Central Bank of Nigeria in a difficult position, as it must weigh the decision to adjust interest rates to control inflation or stimulate economic growth. The possibility of Q1 growth being as fragile as Q4 is looming, with estimates ranging from 1.5% to 2%. The effectiveness of the government's fiscal stimulus in key sectors will play a crucial role in supporting economic growth, given the 25% increase in the 2021 budget compared to the previous year. External factors, such as rising oil prices and the economic performance of Nigeria's trading partners like the United States and China, also contribute to Nigeria's economic recovery. Foreign Direct Investment (FDI) is seen as a key driver for Nigeria's economic firepower, but fluctuating numbers and perceptions pose challenges. Improving policies on foreign exchange transparency and demonstrating effective economic management can enhance Nigeria's appeal to foreign investors. Fiscal reforms have been a recurring recommendation in IMF reports on Nigeria, particularly regarding exchange rate reforms. However, the implementation of these reforms comes with risks of currency depreciation and inflationary pressures. The balance between reform and stability is a delicate one that Nigeria must navigate to ensure sustainable economic growth. Government spending is crucial for economic stimulus, but revenue generation remains a challenge. Despite higher revenue targets in 2021, hurdles such as oil price cuts and limited reflection of higher oil prices in foreign exchange reserves pose obstacles to revenue collection. Finding innovative ways to boost revenues while maintaining economic stability will be essential for Nigeria's economic recovery.
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