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As the general elections draw near, economic analysts have said they do not envisage any fuel subsidy removal by the federal government this year. They also foresaw that the Central Bank of Nigeria (CBN) would continue its tight monetary stance till the rest of the year as they expect the inflation rate to be kept within the single-digit band.
“Given the coming elections, we are not expecting any cut in government subsidies in 2014. Thus, we anticipate no squeeze in consumer spending and believe this could be supportive of higher sales by manufacturers of consumer goods,” said Managing Director, Dun Loren Merrifield Assets Management, Mr. Tola Odukoya, alongside his colleagues at their first quarter economic review and outlook for the second quarter.
Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, who held the same view on the fuel subsidy, noted that the removal is not politically expedient in an election year.
“Fuel subsidy removal is not the right thing to do at this period as it does not make a political sense. Even though it makes economic sense but the timing does not make political sense. After the election, the federal government can do that; it can make political sense that time.”
The analysts’ prediction on subsidy was in spite of the recent approval of total subsidy removal by the Federation Accounts Allocation Committee (FAAC). FAAC had adopted the recommendation of its committee, which it established to work on the possibility of abolishing fuel subsidy.
FAAC comprises all the 36 states’ finance commissioners, their accountants-general, representatives of the Federal Inland Revenue Service (FIRS), Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), amongst others.
The analysts at Dun Loren Merrifield, a research and investment banking outfit, however noted that they expected inflationary pressures from increased spending in the domestic economy as preparation for the 2015 elections gathers momentum. Besides, they posited that sustained pressures on exchange rate posed a significant downside risk to their outlook.
In view of this, they projected an average inflation rate in the neighbourhood of 9.5 per cent and 9.7 per cent for 2014, ‘barring any currency devaluation’.
Besides, the experts pointed out that “recent pressure on exchange rate further strengthens their position of a possible depreciation of the naira in the current year given that the nation’s foreign reserves will be further depleted if current exchange rate stability strategies are maintained.”
According to them, “our view is firmly supported by the commitment of the MPC to aggressively pursue the price stability and exchange rate objective. The erosion of the fiscal buffers through the depletion of the external reserves raises significant concerns as the economy is further exposed to vulnerabilities.”
Nonetheless, the analysts expressed belief that the market would remain stable through the year as they expect “the issuance of more non-sovereign bonds in the months ahead
Also, they expected “some kind of sell-off from both domestic and offshore investors to hold cash as a result of the fear of uncertainties due to the 2015 general elections.”
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