By Isa Amodu
Due to the current border closure, Nigeria’s inflation may continue to experience a constant upward trend, a report by Fitch Inc company has projected.
Also, the report says Nigeria’s Gross Domestic Product (GDP) growth is not expected to experience any significant rise in the 2020 fiscal year, a report by Fitch Ratings Inc, an American economic solutions company.
According to Fitch, the economic policies implemented so far in Nigeria under the current administration of President Buhari have made the economy become more vulnerable, as the value of Naira remained weak.
“Fitch projects average GDP growth of 2.4% in 2019-2021, well below the ‘B’ median of 3.4% and the five-year average demographic growth rate of 2.7%._
“Fitch projection shows that Nigeria’s economy will continue to slow down until 2021, hovering around 2.4%. This represents a big blow to investors’ sentiments, as investments in the economy may drop further,” the report said.
According to the economic solution company, the Open Market Operation policy by the central bank will further lead to reduction in portfolio inflows into the country.
This they say, will affect the economic growth and investment into the country.
“The Central Bank of Nigeria’s (CBN) array of policies are unconventional and costly for the economy.
“Fitch questioned the CBN policy of attracting portfolio investments in its short-term Open Market Operations (OMO) bills by offering high yields to foreign investors at low cost while restricting operations.
“To Fitch, the restriction imposed on operations in the OMO market by the CBN will lower OMO market liquidity due to a narrower range of participants, and this will dampen net portfolio inflows.
“Fitch expects the CBN policy to limit operations in the OMO market to dampen net portfolio inflows. What this means is that, as net portfolio inflows drop, the country’s reserves will continue to decline and this poses a big threat to Naira devaluation in 2020. It also means the Naira you hold would loose its value i.e you can only buy little with much money.
“Going by the Fitch prediction, devaluation may be imminent in 2020 and any such move means businesses are in for major setbacks in 2020. That may affect your business too,” the firm explained.
The report however warned that any further devaluation of the naira will pose a huge threat to Nigeria’s economic growth.
“Also devaluation of Naira would cause big problems to Nigeria’s macroeconomic environment, and as a result, drag down the economy,” the report stated
Furthermore, it is forecast povernment’s borrowing will be on the rise in the 2020 fiscal year as Nigeria’s low non-oil fiscal revenues linger.
Also, Inflation is expected to be on the rise following government’s implementation of the new Value Added tax as well as the border closure five months ago
“Similarly, the firm believes inflation will spike in Nigeria in 2020 due to recent policy measures which include the upcoming raise of the VAT rate, 66.7% hike of the minimum wage, as well as the recent closure of land borders to foreign trade and tightening restrictions on FX financing for a wide range of imports.
“Expected also to rise in political uncertainty. Emerging rivalries within the ruling APC party is expected to spark by early dissensions over the 2023 succession to President Buhari. This means uncertainty in Nigeria’s political atmosphere could hamper policy-making.
“Nigeria’s inflation is expected to continue to rise in 2020. This means purchasing power is expected to drop in the economy, as several unconventional policies being implemented by the government will continue to drive prices high in the economy.
Fitch added that President Buhari is likely to increase borrowing as revenue crisis will worsen in 2020.
This implies that a large portion of the country’s revenue will go into debt servicing, as the country’s debt stock is expected a new high.
Fitch believes that it will affect the pace of some infrastructure projects in 2020, as government may channel more fund to debt.
GovernanceNews reports that the border closure which lasted for over five months now has skyrocketed prices of goods in the country with government admitting not knowing when the land borders will be opened.