By Sodiq Adelakun
The Chief Executive Officer (CEO) of Financial Derivatives, Bismarck Rewane, has called for the removal of restrictions on open market operations (OMO) and for an increase in interest rates to boost Nigeria’s economic fortunes.
Speaking last week at the 2024 economic outlook session hosted by the Harvard Business School Association of Nigeria (HBSAN) in Lagos, Rewane highlighted the challenges facing the Nigerian economy.
He pointed out that while the economy is growing at a faster pace of 3.3 percent, compared to the population growth of 2.6 percent, there are several entrenched macroeconomic challenges.
One of the major issues identified by Rewane is the lopsided growth of the economy, which he described as a natural wealth economy rather than a produced wealth economy.
He also highlighted the high multidimensional poverty and unemployment rates, as well as spiraling inflation as significant concerns.
To address these challenges, Rewane suggested a few options that require hard choices and tough actions. He recommended increasing interest rates towards the inflation rate and removing restrictions on Open Market Operations (OMO) participants.
He also proposed eliminating capital controls and adopting a wholesale Dutch auction system. Additionally, he advised reducing subsidies gradually.
Also, the financial expert has warned that Nigeria’s economy is still vulnerable despite the country’s exit from recession.
He highlighted the weaknesses in the external sector, including the fact that external debt is 100 percent of total exports, and the debt service to export ratio shows that the external sector is vulnerable.
He also noted that sectors of the economy that are exchange rate sensitive are similar to those with huge banking exposure.
According to Rewane, Nigeria’s total external debt is expected to increase from $85.5 billion in 2023 to $93.1 billion in 2025, while the debt to exports ratio is expected to rise from 97.5 percent in 2023 to 112.5 percent in 2025.
The debt service ratio, which measures the amount of debt payments as a percentage of exports, is expected to decrease from 14.1 percent in 2023 to 11.4 percent in 2025.
Meanwhile, he highlighted that the Nigerian equities market will experience a market correction before a positive inflection due to corrective policies.
He also warned that the high inflationary environment remains a threat to return on investment, and an increase in interest rates to tame the high inflation rate will weigh on investment in equities.
Additionally, an increase in the price of PMS will negatively impact both consumer purchasing power and corporate profit margins.
In his presentation, he said, “There will be a market correction before a positive inflection, A high inflationary environment remains a threat to return on investment, An increase in interest rates to tame the high inflation rate will weigh on investment in equities, An additional increase in the price of PMS will negatively impact both consumer purchasing power and corporate profit margins.”
He stressed further, “Nigeria will also need to come to terms with its domestic and external debt situation, expected to begin talks with the IMF and restructure its external debt, there are lags between policies, the initial impact, and the final impact.”