As Nigeria’s Economy Leverages Increased Recurrent Spending

With the federal government planning to spend almost N10 trillion on recurrent expenditure out of the N28.7 trillion 2024 budget, analysts have said the increased spending will boost growth to circa 3.7 per cent.

Speaking at the FirstBank of Nigeria’s 2024 Outlook session with the theme; Current Realities and Prospects,” the group managing director of FirstBank of Nigeria Limited, Dr. Adesola Adeduntan said, he expects a robust and optimistic economic outlook for Nigeria.

According to him, the increase in capital expenditure outlined in the 2024 budget will enhance economic activities throughout the year. Adeduntan, in his opening remarks, said: “the year has started on a very strong footing with the President, Commander in Chief, President Bola Ahmed Tinubu signing the 2024 appropriations bill into law with a record proposed spending of N28.7 trillion which is the highest in the history of the country in nominal terms.

“More exciting is the fact that about N9.9 trillion specifically is budgeted for capital expenditure.”

He said by implication, significant spending is planned and this will allow for desperate enough stimulus within the economy that allows serious players to tap into the goals and aspirations of the government.

“The budget assumes a growth expectation of about 3.76 per cent even though what is being projected by IMF is slightly lower at about 3.3 per cent which is slightly lower than the sub-Saharan African average of about 4.2 per cent. Given the size of our economy, whether you’re looking at 3 per cent or 3.7 per cent growth, the growth is significant and serious players  do have the opportunity to tap into this.”

On his part, the Chief Consultant, B. Adedipe Associates Limited, Dr. ‘Biodun Adedipe projected that Nigeria’s economy will likely grow by 3.74 per cent in 2024. He noted that his firm’s projection on Nigeria’s growth prospect is more optimistic than domestic and international entities.

“What I see more is an economy that will likely grow at about 3.74 per cent. The World Bank indicated 3.3 per cent. But, we in BA Consult see 3.74 per cent. International Monetary Fund probably will come later and revive their own, also in their outlook, and of course, different other entities. But, everybody is projecting this economy to grow at above three per cent this year,” he said.

Further on prospective economic trends in Nigeria for 2024, with a specific focus on interest rates, exchange rates, and gross domestic product (GDP) growth, the chief consultant has foreseen the likelihood of the Central Bank of Nigeria (CBN) adopting an orthodox monetary policy approach.

The prediction suggests a potential increase in the Monetary Policy Rate (MPR) to narrow the gap with inflation.

He added that, the MPR may not undergo significant changes in the first half of 2024, with a potential decrease anticipated in the latter half of the year. Despite this, he acknowledged President Bola Tinubu’s inclination to promote consumer credit, indicating a preference for lower interest rates.

He said: “on exchange rate, different entities have done expectations for the exchange rate for Nigeria. If you look at JP Morgan, if you look at World Bank, IMF, the one that is frightening is EIU because they said if we continue with this unified exchange rate, we may see the Naira get to N2,000 to a dollar. But, I now say that it may not necessarily work out that way.’’

Based on various indications, including government pronouncements and budget assumptions, the chief consultant said that the official exchange rate was expected to average around N900 to the dollar.

He said: “So, looking at how the market has behaved between June 2023 and beginning of this year, we have an outlook of an average of official rate around N900. The pattern is this, typically, anytime there’s a major shift or destruction in any economy, a new equilibrium is created and that was what happened when fuel subsidy removal was implemented.’’

Adedipe also foresees the parallel market rate staying below N1,235 per dollar, saying that occasional fluctuations are possible.