Bismarck Rewane, Managing Director of Financial Derivatives Company Ltd and economist, painted a mixed picture of the economy yesterday, projecting that the Central Bank of Nigeria (CBN) will spend between $8 and $10 billion this year to defend the naira.
According to him, this would reduce the country’s gross external reserves to between $30 and $32 billion this year.
The gross reserves, which had been declining since the end of last year, reached $40.5 billion on January 11. Nigeria’s share of last year’s International Monetary Fund (IMF) special drawing rights (SDR) and Eurobond proceeds had shored up reserves, halting a tumbling era that began in 2020.
Rewane, speaking at the Nigerian-British Chamber of Commerce (NBCC) 2022 Economic Outlook, stated that the Central Bank of Nigeria (CBN) would not spend less than $8 to $10 billion to support the naira, which has been under renewed pressure at the Investors’ and Exporters’ (I & E) window.
According to the economist, the foreign exchange (FX) market may face pressure in the short term, as capital outflows are expected to increase. He, on the other hand, saw the effective exchange rate rising as the spread between the official and parallel market rates narrowed.
He went on to say that the market’s lack of “a rate-determining mechanism” has been a major challenge, and that he expects rate convergence to continue into the year.
According to him, global developments will influence the CBN’s policy direction, and the Bank will maintain its “adoption of its crawling peg strategy in a shift toward greater exchange rate flexibility.”
He forecasted that investment activity would suffer as a result of project delays, low real rates of return, and policy uncertainty, as travel restrictions, capital controls, and supply chain disruptions continue to limit business activity in the short term.
“In line with oil price movements and the hydrocarbons production outlook, foreign exchange earnings and fiscal revenues will recover slowly.” “Limited fiscal space, slow reform momentum, and political risks will prevent the business environment from rapidly improving,” he said.
He predicted that inflation would accelerate in the first half of the year before slowing, warning that it was not in the country’s best interests to continue producing data with flaws. He was perplexed as to how the country’s inflation could possibly be slowing when the global trend is the opposite.
Rewane stated yesterday during another economic outlook webinar hosted by First Bank of Nigeria Limited that last year was full of uncertainty and perplexity. He admitted that economic sustainability performed admirably last year.
Bisi Adeyemi, President and Council Chairman of NBCC, highlighted the challenges posed by an unstable global market, as well as the implications for Nigerian businesses.
“A major goal of hosting the 2022 Economic Outlook is to conduct a thorough assessment of the opportunities, challenges, and threats that businesses should expect to face this year.”
“I am sure that many of you, like me, would like to have a crystal ball to give you a sneak peek into what the year holds, and I would certainly like to know how the permutations of a pre-election year will impact the economic indices,” Adeyemi said.
In addition, the British Deputy High Commissioner, Ben Llewellyn-Jones, emphasized the two countries’ strong bilateral ties and the UK’s commitment to strengthening existing trade relations, including its continued support for Nigeria’s efforts to diversify its economy.