By Nse Anthony-Uko
(Sundiata Post) – Revenue projections in the 2018 Budget is expected to underperform by 34 per cent as a shortfall in non-oil revenues offsets the impact of strong price recovery in the oil sector, PricewaterhouseCoopers has said.
In its economic outlook for 2018, which the professional services firm noted that accordingly, debt service to revenue would expand to 45 per cent, higher than the projected 31 per cent in the budget
Fiscal deficit is to widen by 67 per cent to N3.4 trillion (2.4% of GDP).
“We expect that the deficit will be funded by an increased issuance in the domestic bond market,” it said.
PricewaterhouseCoopers also noted that the naira may depreciate against the United States dollar at the Investors and Exporters Window to N386 from the current average of N360 as increased foreign exchange demand ahead of the 2019 general election might make the local unit to weaken.
The report read in part, “With the outlook on the oil price and level of reserves accretion ($40.6bn), we expect that the CBN would maintain the exchange rate peg of 305/dollar at the CBN window.
“In H2’18, we estimate a seven per cent exchange rate depreciation in the I&E window to 386/dollar, as FX demand increases and foreign investments slow ahead of the 2019 elections.
“Overall, the CBN maintains its multiple exchange rate regime, sustaining its intervention in the various FX markets.”
According to analysts at PwC, exports are likely to outpace imports on strong oil export revenues and shrinking import demand this year
The real Gross Domestic Product growth is expected to reach two per cent year-on-year on improvements in net exports and domestic demand.
The professional services firm said investments would benefit from an improving investment climate.
It however, said that some of this growth would be offset by uncertainty usually associated with election cycles in Nigeria.
On monetary policy projection, it said, “Moderating inflation, exchange rate stability and a fragile economic recovery provide room for a rate cut. We expect only one rate cut in 2018 which would likely be capped at 200bps. The need to keep rate differentials attractive means Open Market Operations issuances would become more aggressive
“To offset the impact of pre-election spending and currency volatility, we expect a 200bps increase in the MPR to 14 per cent at the September meeting.”
