Towards the finishing line, still time to deliver
- Out of recession into weak growth: The economy has returned to the growth path, although not in per head terms and largely due to the recovery in oil output. Household demand remains soft. The services sector contracted y/y in Q3 2017. We see growth at just 0.8% this year and 2.1% in 2018, based upon rising crude production, a fiscal stimulus and investment in pockets of the economy.
- Time for fiscal policy to deliver: The FGN is confident that its cumulative expansionary fiscal policy will bear fruit in 2018 in the form of completed projects and the knock-on effects. (If it is right, there could be electoral considerations.) It can also convert the recent Eurobond sales into capital releases in coming months.
- Talk of better revenue collection, too: The data is patchy but it appears that aggregate revenue collection has picked up steam in 9M 2017. If confirmed, this increases the FGN’s room for fiscal expansion and delivery.
- Stable fx policy in the year ahead: The CBN is rightly pleased with its unorthodox multiple currency practices. Turnover on NAFEX has gathered momentum and contributed to healthy growth in reserves, along with better oil revenues and the fx debt sales. Reserves are heading for US$40bn and above. The CBN is under no domestic pressure to abandon its practices.
- Scope for gentle monetary easing: The monetary policy committee has not changed stance since July 2016. Yet we see scope for easing as headline inflation is due to slow in H1 2018 on positive base effects. Independently, the rates on FGN naira paper are falling on official debt strategy, the early success of NAFEX and the return of the offshore investor. Happily for the FGN, this trend has further legs.