Decoding Nigeria’s 2024 Fiscal Maze: Budget, Bonds, and Beyond

In the week, there has been a lot of uncertainty amid new budget details and declining yield levels in Nigeria’s financial scene. The 2024 budget unfolded, showcasing a total expenditure of N29.77 trillion, predicting a 3.88% GDP growth, pegging the exchange rate at ₦800/$, and setting the oil benchmark price at $77.96, among other key indicators.

The naira’s new year commenced weakly, contrasting with the positive closure of the U.S. dollar index. The naira settled at ₦988.46 to the dollar on Tuesday, depreciating significantly from the ₦907.11 quoted at the end of 2023. Despite Afreximbank injecting $2.25 billion to alleviate forex pressures, the naira struggled as the F.X. market faced reduced liquidity.

Meanwhile, the FGN bonds, particularly the 53s, plummeted to 16.00% from their initial position. On Wednesday, there was a fresh low for the naira, reaching ₦1,035.12/$1 at the official market, indicating a steep fall from previous rates.

A significant highlight was the data from the FMDQ Group, revealing that in 2023, 56 Nigerian companies amassed a substantial ₦1.504 trillion through commercial papers, marking a staggering 499% surge from 2022. Notably, MTN Nigeria Plc led the pack, raising ₦375 billion across seven issuances, followed by Dangote Cement, securing ₦221.28 billion through 6 issuances.

In the stock market, over five trading days, from December 27, 2023, to January 3, 2024, equities on the NGX surged by around N2.063 trillion, aligned with a 5.11% rise in the NGX’s All-Share Index. The upward trajectory hit new highs four times, starting at 73,768.64 points on December 27 2023 and closing at 77,537.57 points on January 3 2024. Simultaneously, the NGX’s market cap soared from ₦40.37 trillion to ₦42.43 trillion.

In other news, the federal government announced plans for Nigerian banks and fintech companies to introduce the NGN stable coin on February 27, 2024. This stablecoin, backed by the Central Bank of Nigeria (CBN), aims to stabilise the volatile naira, allowing global transactions at the official CBN rate and eliminating currency conversion issues and high international transaction fees. Despite these plans, concerns arose regarding pegging the Nigerian stable coin (cNGN) to the unpredictable NGN, unlike stable coins like USDT tied to the stable U.S. dollar. This move potentially exposes investors to risks due to the naira’s volatility.

Looking ahead, the Manufacturers Association of Nigeria (MAN) foresees limitations in its performance until mid-2024 due to forex challenges and high inflation. Capacity utilisation might linger around 50%, with expectations of improvement in the third quarter as these hurdles ease.

In essence, the recovery of the naira hinges more on restoring confidence reliably rather than on the government’s promotional tactics, as anticipated by the market.