how will the incoming Buhari administration manager the economy in the face of fallen oil price? It is by instituting tighter fiscal measures to boost revenue, says Olubunmi Ashaolu, the analyst at FBN Capital, an investment and research firm.
In an emailed note to investors titled: Welcome recovery in auction bid, he said in the absence of higher oil price to support public finance, the incoming government may go for tighter fiscal managements.
Ashaolu listed tax exemptions, duty waivers, oil revenue inflows, officials’ allowances and ineffective ministries, departments and agencies (MDAs), as areas where fiscal management could be tightened to boost investors’ confidence.
If there is to be fiscal transformation, it will come in stages, he said, adding: “Members of the circle around the president-elect have sought to manage expectations and indicated that Nigerians may not see sizeable changes until October. The 2015 budget process, almost concluded, limits their room for maneuver,” he said.
The economist said investors’ rising confidence in the economy is reflected in improvement in bond auctions done by the Debt Management Office (DMO) after the elections.
The DMO held its latest monthly auction of Federal Government of Nigeria (FGN) bonds last week and raised its target of N70 billion. The total bid of N186 billion was the highest since July last year and a sharp increase on the previous month’s N116 billion.
“Local institutional buying picked up on the positive momentum generated by the elections. The offshore community also made an appearance: some players may have re-entered the market, having seen the theory of a third devaluation after the elections overtaken by events. The cut-off point (stop rate) for the same three debt issues was about 200 basis points lower along the curve than at the auction in March,” he said.
Last Friday, yields (bid) on the Feb ‘20s and Mar ‘24s were just below 14.0 per cent. “We do not see many more legs to this current rally: it is based on a recovery in the naira exchange rate (for foreign investors) and a fiscal story which the administration due to take office in late May would like to talk down,” he said.
Besides, portfolio inflows to the country jumped since last month’s presidential election, easing pressure on the naira, the Central Bank of Nigeria (CBN) has said.
CBN Director, Financial Markets, Emmanuel Ukeje, said: “There is more confidence that the economy will grow as the outlook of foreign investors is very upbeat.
“It is expected that the pressure on the naira will abate following the peaceful conclusion of elections. Although other contending factors like low oil prices in the international market still affect the availability of foreign exchange, the pressure should now reduce.”
The CBN has been trying to bolster the currency since last year by limiting foreign-exchange trading and selling down its foreign reserves. The foreign exchange reserves stood at $29.6 billion on April 9, CBN data show. That’s the lowest in at least a decade, according to HSBC Holdings Plc.
