Bankers see naira slide, high interest rate, stock fall in 2019

By Moses Obajemu

Amidst political uncertainties and low business confidence in the economy in the build up to the 2019 general elections, bankers under the aegis of the Financial Market Dealers Association (FMDA), are predicting a routing of Nigeria’s currency, the naira with depreciation against the United States dollar strongly seen in the first, second, third and fourth quarters of 2019.

In a comprehensive economic forecast by the bankers made available to business a.m., the naira, which currently exchanges at N306.35 to a dollar in the official market, would lose about N3 at the end of the first quarter to exchange for N309 to a dollar.

The bankers further forecast that the naira would lose N9 by the end of the second quarter to trade at N315 to a dollar, while dipping by about N14 and N25 in the third and fourth quarters to exchange at N320/dollar and N325 to a dollar respectively.

The forecast also touched on other key economic variables such as interest rate, inflation rate, gross domestic growth rate, stock market growth, the bond yield rate, and many others.

On interest rate, the bank treasurers predict that, currently at 14 percent, it would rise to 15 percent in the second quarter and claw to 16 percent in the third and fourth quarters.

On the GDP growth rate, the bankers projected that growth would be negative, falling to -13.1 percent in the first quarter, before inching up to two and three percent in the second and third quarters respectively. GDP growth rate in the fourth quarter is estimated to tape home at five percent.

The bankers also forecast that the stock market would record rising all-share index level from the present 30,682.92 points to 30,879 points at the end of the first quarter. The index would, however, experience sustained falling index level from the second to the fourth quarters, falling to 30,494 points, 30,112 points and 29, 734 points respectively.

However, bond yield rate will continue to improve during the year. From the current 14.96 percent to 15.62 in the first half, the rate will rise to 15.74 in the second half. In the third quarter, yield would improve to 15.86 percent and end the year at 15.98 percent.

The bankers’ forecasts have further added fillip to earlier forecasts which point to a difficult year ahead for Nigerians. An economic research group and team of analysts, SB.Morgen had, in what it termed an exploratory journey into 2019, raised the alarm that falling oil prices, even below the budget benchmark of $60 per barrel, would make the already strained revenue profile of the country untenable, leading to some damning economic consequences.   

According to the research group, the effects of reduced oil production quota for Nigeria and falling prices of crude oil are many.

“First, the government’s already strained revenue position will become totally untenable, and we predict that debt service to revenue ratio will reach 80%, limiting Nigeria’s ability to continue to borrow money internationally,” it said.

While hinting that the government would try to defend the naira in the first half of the year for political reasons which may result in relative exchange rate stability, it nonetheless predict a steep rise in the exchange rate by between 30 percent and 40 percent once the elections are over

“We expect that the government will attempt to control this price for as long as it can, opening arbitrage windows akin to 2016 and leading to significant capital flight,” the report said.

Continuing, the firm said it expects the trend of poor budget performance to continue, due to the precarious revenue profile of the central purse which will make key investments impossible..

“Whatever the new wage structure that is negotiated with the unions ends up to be, unpaid salaries will remain a clear and present reality.

“Another impact of poor budget performance will be an inability to continue to fund some of the social intervention programmes the government is currently championing.

“As we do not expect the policy choices to be different, it is likely that Nigeria will face another recession in 2019,” the report said.

Recently, the President held a closed door meeting with the 36 governors in Abuja where he told them about the poor state of the economy and the treasury.

Abdulaziz Yari,  Zamfara state governor who also doubles as the chairman of the governors’ forum, who briefed journalists after the meeting said the President told them to prepare for tough times ahead,

According to him, the President informed the governors that “the economy is in bad shape and that we have to come together, think and rethink on the way forward.”