CBN Governor Cardoso predicts that Petrol prices would fall due to launch of refineries.

According to Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), the pump prices of Premium Motor Spirit (PMS) gasoline would moderate this year when government and private-owned refineries commence operations.
At the Nigerian Economic Summit Group (NESG) 2024 Macroeconomic Outlook Report launch in Lagos on Wednesday, January 24, he gave a speech.

According to Cardoso, the anticipated stabilization or decline in gasoline prices is anticipated to have profound effects on a number of industries, greatly enhancing the resilience and general efficiency of the economy.

The Port Harcourt Refinery is anticipated to start producing at any moment, but the Dangote Refinery has already started.

Cardoso noted that in order to promote reserve accretion, the Ministry of Finance, the NNPCL, and the apex bank have worked together to guarantee that all foreign exchange inflows are returned to the Central Bank.

He said that the naira was undervalued, worth about N1,370 to the dollar on the black market.

He stated, “We think the naira is currently undervalued and we will expedite genuine price discovery in the near term, coupled with coordinated measures on the fiscal side.”

Dr. Olusegun Omisakin, the Chief Economist at NESG, summarized the NESG 2024 Macroeconomic Outlook Report in Lagos by enumerating some of the economic benefits of establishing a stable and suitable exchange rate price in Nigeria.

According to the NESG analysis, boosting market liquidity through frequent auctions, lowering administrative barriers, and guaranteeing the effective distribution of FX reserves are all necessary for stabilizing the exchange rate through a transparent and functional foreign currency market.

Market confidence would be increased by implementing a managed float system, controlling speculative activity, and promoting foreign investment. Additionally, in order to support international trade and transactions, access to foreign exchange must be regulated. As a result, local access must be limited to the Naira equivalent. Currency stability would be enhanced by monetary policies that are strengthened for export diversification and inflation control, the paper recommended.

Assuring that the economy is currently at a turning point and that the bold reforms being undertaken across different segments of the economy, while initially challenging, are ultimately directed towards addressing these challenges in a sustainable manner, Cardoso acknowledged the challenges facing the economy and the resistance to proposed solutions by various stakeholders.

“I’m sure that good things are happening already, and in the near future, these will definitely become more obvious. Significant and beneficial changes to our economy are expected as a result of the committed and persistent efforts being made.

“Indeed, recent reports from international rating agencies such as Fitch, Moody’s, and commendations from multilateral banks like 3 Classified as Confidential the World Bank reflect this, with upgrades to Nigeria’s ratings from stable to positive. These reports acknowledge the possible reversal of the deterioration in the country’s fiscal and external position due to the authorities’ reform efforts,” Cardoso said.

“While noting the painful adjustments, they all identify a direction of travel that will unlock the much needed growth and development for our economy in the medium to long term.”

He said the rising costs of food prices and volatility in the forex market will soon be addressed.

On economic growth, he said the global economy is currently grappling with persistent challenges, including inflation and subdued growth prospects.

Despite Gross Domestic Product (GDP) growth outperforming expectations in 2023, it is projected to further moderate in 2024 due to tightened financial conditions, sluggish trade expansion, and reduced business and consumer confidence. The International Monetary Fund (IMF) anticipates a mild slowdown in global economic growth to 2.9 percent in 2024, down from the 3.0 percent growth observed in 2023, with Asia driving the majority of the projected global growth in 2024, similar to the previous year.

He said the projections for the nation’s economy paint an optimistic trajectory as the Federal Government of Nigeria anticipates real GDP growth of 3.76 percent in 2024, slightly surpassing the estimated 3.75 percent for 2023.

The optimism, he said, was underpinned by the implementation of key government reforms set to shape the economic landscape. Foremost among the factors contributing to this positive outlook is the expectation of improved crude oil prices and production, highlighting the crucial role the oil industry is expected to play in driving economic growth.

Cardoso said the positive outlook for Industry, Services, Agriculture, and Mining, Electricity, Gas & Water Supply sub-sectors reflects the potential effect of market-based reforms through private investment and SMEs-led growth that would contribute to business improvement and confidence.

“Government reforms in the mining and energy sub-sectors are expected to serve as a catalyst for growth and development. 3. While the potential for growth exists in 2024, each sector may encounter unique challenges and opportunities,” he said.

He said that inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4 percent.

This will be aided by improved agricultural productivity and the easing of global supply chain pressures, benefiting businesses by boosting consumer confidence and purchasing power.

He explained that the CBN’s adoption of the inflation-targeting framework involves clear communication, use of monetary policy instruments, and collaboration with fiscal authorities to achieve price stability, fostering market confidence and positively influencing consumer behaviour.

“The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lowered policy rates, stimulating investment, fueling growth, and creating job opportunities,” he said.

Cardoso said the expected stability in the foreign exchange market for 2024 can be attributed to the reduction in petroleum product imports and the recent implementation of a market-determined exchange rate policy by the CBN.

“This reform is designed to streamline and unify multiple exchange rates, fostering transparency and reducing opportunities for arbitrage. The resulting consistent and stable exchange rate will not only boost investor confidence but also attract foreign investment, elevating Nigeria’s appeal to global investors,” he said.

Cardoso said the NESG’s Macroeconomic Outlook Report for 2024 emphasises the necessity of economic transformation under the central theme, “Economic Transformation Roadmap: Medium-Term Policy Priorities.”

“This theme underscores the requirement for a clearly outlined roadmap comprising distinct yet interconnected phases and essential policy recommendations. This resonates with me as we have just last week, launched a new 5-year Strategy for the Central Bank of Nigeria for the period 2024-2028 that provides a clear roadmap for achieving our mandates,” he said.

The NESG report explained that when exchange rates are stable, everyone is better off. Price stability supports economic growth and employment. It allows people to make more reliable plans for borrowing, saving, and expanding businesses.

“Decreased volatility of the exchange rate helps to support stability in inflation, which mainly affects low-income households because they have fewer resources to protect themselves. In the situation of price stability, it helps to maintain social cohesion and stability. History has shown that episodes of high inflation tend to be associated with social unrest,” the report.

According to the report, increased capital inflows will fortify the nation’s external reserves, establishing a robust defence against external shocks.

“This can only happen with the stability of the exchange rate. Capital inflows, comprising foreign investment, loans and remittances, elevate the reserve levels, bolstering Nigeria’s financial stability and economic resilience,” it said.

The NESG report advised that in addition to nominal enhancements in revenue, the country’s revenue-to-GDP ratio must reach a minimum threshold of 15 percent to substantiate the processes of economic growth and stabilisation.

“The country must significantly decrease its current public debt service-to revenue ratio, aiming for a reduction to less than 22 percent from the current high of 80.2 percent as of 2022. This reduction is crucial to create fiscal space, enabling the government to reallocate funds toward economic development and stability initiatives.

“A moderate fiscal deficit can be a useful tool for financing essential investments and stimulating economic activity. Hence, the optimal level of fiscal deficit that supports economic growth and stability in Nigeria requires a careful balance. A fiscal deficit of less than three per cent as stipulated in the FRA 2007 is considered appropriate for the economy,” it said.

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