Experts at the FSDH research have noted that with the implementation of Central Bank of Nigeria’s 5year agenda, more funds will be available to finance non-oil export-led sectors which will create new businesses, reduce import dependency and grow foreign exchange earnings.
It will also ensure stable exchange rate and possibly cause the value of the currency to remain stable to appreciate, they added. The head of research, Ayodele Akinwunmi, disclosed this at the monthly Economic and Financial Market Report with journalist at the weekend.
The Central Bank of Nigeria (CBN) had released its policy thrust for the next five years with four key macroeconomic economic targets for 2019-2024: double-digit growth rate in the Gross Domestic Product (GDP), single-digit inflation rate, foreign-exchange rate stability and accelerating employment rate.
In order to achieve the key targets, the CBN has the following five key priorities: preserve domestic macroeconomic and financial stability, create robust payment system infrastructure, work with the Deposit Money Banks to improve access to credit for smallholder farmers, Micro, Small & Medium Enterprises, (MSMEs) consumer credit and mortgage facilities for bank customers, grow external reserves and support efforts at diversifying the economy through intervention programmes in the agricultural and manufacturing sectors Akinwumi said: “We expect growth in non-oil exports from Nigeria and reduction in the cost of exporting goods from Nigeria, therefore making exportation more profitable than before.”
He also said there may be a reduction in the country’s import bill, a reduction in the cost of inputs for manufacturing companies and the development of agro-allied industries. He added that the CBN may propose moral suasion programmes and specific industry/product limit arrangements to channel bank loans towards agricultural and manufacturing sectors.
FSDH Research also expects an increase in the capital base of banks in Nigeria, which would enable the banking system support larger and better viable projects. However, other complementary fiscal measures must be implemented to ensure the success of this initiative.
“There may be mergers and acquisitions in the Nigerian financial industry. Some foreign players may come into the system. In the first few years of implementation, the Return on Equity (ROE) of banks may drop’’, he added. FSDH Research also expects the development of mortgage-backed securities in the market.
This will expand investment securities and trading opportunities in the financial market. More loans may also be channelled to the real estate sector of the economy, creating jobs and shared prosperity in that sector. Akinwumi said the monetary policy stance of the Central Bank of Nigeria (CBN) favours a low interest rate regime in the short-term to the limit that the inflation rate and external reserves can accommodate, except there is any domestic or external shock.
He also disclosed that there may not be any major exchange rate depreciation or devaluation as long as the external reserves remains strong. “The external reserves will remain strong provided Nigeria is able to attract more foreign exchange earnings through Foreign Direct Investments (FDIs), sales of oil and non-oil products. The trigger for a possible depreciation or devaluation in the currency will be when the stock of external reserves is no longer enough to cover more than 6 months of imports.”