The Managing Director of Coronation Merchant Bank, Mr Banjo Adegbohungbe, has said that the implementation of the recent naira redesign policy could assist with abetting Nigeria’s inflation risks.
Adegbohungbe stated this at the unveiling of the company’s economic review and 2023 outlook tagged ‘Baton Hand-off: Economic Headwinds and Expected Resilience’ in Lagos.
- ”It is an election year, there are concerns around demand-pull inflation on the back of expected spending associated with electioneering. However implementation of the recent naira redesign policy could assist with abetting the inflation risk,” he said.
Some concerns: He noted that there are also concerns around policy continuity post-election, as well as an expected lull in economic activity on the back of the transition phase.
Adegbohungbe said Nigeria’s GDP growth is expected to maintain its growth trajectory but at a relatively slower pace.
He noted that the impact of recent global economic shocks on the Nigerian economy was prevalent in 2022 and is expected to persist in 2023.
Bank’s preparedness: He explained that compared to a previous low point in the country’s economic cycles, the banking industry is better prepared to weather the storm. He said:
- “Capital adequacy and liquidity ratios are much higher, governance is more effective and foreign currency balance sheets are more resilient. In spite of current macroeconomic headwinds, industry non-performing loans have been relatively lower than earlier anticipated. In 2023, our in-house economic intelligence projects the banking industry will face pressure from elevated inflation, higher interest rates and fx liquidity constraints. Regardless, there will be opportunities to unlock new growth, particularly in the second half of the year.”
Inflation risks: Adegbohungbe noted that 2023 brings with it a mix of economic conditions, adding that the bank expects the current inflation trend to persist in both advance and emerging economies.
He noted that the resultant effects of monetary policy tightening are also expected to continue but at a reduced pace given the inflation outlook across markets which points towards gradual moderation in H2 2023.
He said forex liquidity constraints are likely to continue in the near term, particularly in the parallel market and as such steady depreciation has been factored into our forecast.
Fixed income: Adegbohungbe noted that as for the fixed income market, considering the maturity profile of current FGN, debt instruments, liquidity could improve in H1 2023.
- “But we expect continuous tightening in the inter-bank market as the FGN front-loads domestic borrowing in 2023 due to its projected budget deficit and our expectations of reduced activity with regards to external borrowing,” he said.
Fuel subsidy: Meanwhile, the Chief Economist and Head of Economic Research/Intelligence at Coronation Merchant Bank, Chinwe Egwim, said the bank expects fuel subsidy costs to remain elevated and the NNPC’s capacity to remit to the FGN challenged, at least in the first half of 2023. She said:
- “The FGN plans to halt PMS subsidy payment by end of H1’23. According to the 2023 – 2025 medium-term expenditure framework and fiscal strategy paper, only N3.36 trillion will be provided for PMS subsidy in H1 2023. This is 1.7 trillion higher than the amount spent in the corresponding period of 2022 (N1.6 trillion).
- “For domestic production, we note that the Amukpe-Escravos pipeline could assist with reducing oil theft and vandalism. This is in addition to the online portal and pipeline surveillance contracts with the former militant leader Government Ekpemupolo. These initiatives could assist in improving our production in 2023.”