FDC: Nigerian Economy to Remain Vulnerable to Shocks

                                 Dr. Ngozi Okonjo-Iweala, Finance Minister

By Obinna Chima

Despite recent measures adopted by the federal government to protect the economy from the adverse effects of the falling crude oil prices, a report has maintained that the Nigerian macroeconomic environment will continue to be vulnerable to exogenous shocks in 2015.

It also predicted that the Naira would fall to N200 to a dollar at the parallel market.

The Financial Derivatives Company Limited (FDC) stated this in its latest report titled: “2015: Pain Before Gain,” obtained at the weekend.
Oil prices are still plunging even after losing over 50 per cent last year (now about $56pb).

Also, the naira has remained volatile while interest rates are strangulating at 22 per cent per annum.

“These are some of the issues that made the second half of 2014 a rough and tumble period as well as one of the most interesting years this decade for Nigeria.

“Against this background that shows that cyclical economic downturns and recovery are inescapable, our findings reveal that the Nigerian macroeconomic environment will continue to be vulnerable to exogenous shocks in 2015.

“This is mainly because oil prices and international capital flows will continue to be dominant features in the Nigerian macroeconomic equation,” it stated.

It, however, pointed out that the challenges are not Nigeria specific, citing the example of Venezuela that  is  in a recession after three consecutive quarters of negative growth and reported an inflation rate of 63 per cent.

In the same vein, the Russian economy is reeling with the ruble down by 77.79 per cent in 2014. 

But  FDC noted that some of the pertinent questions that would affect all Nigerians in 2015 would, among others,  include if the naira would cross N200 to a dollar.

“Will the naira cross N200/$?  Yes. The parallel market rate is expected to cross N200/$ as dollar demand pressure persists. A N200/$ rate is only a 15 per cent adjustment as against 45 per cent devaluation in 2009.

Although projecting the value of naira is currently clouded by several domestic and exogenous factors, the fair value of the currency is expected to be between N180/$ and N195/$ at the interbank market,” it argued.

Furthermore, it noted that the recent naira  adjustment by the CBN was timely, adding that the exercise  had brought about equilibrium in some segments of the forex market.

FDC, however, predicted that a further depreciation of 3-5 per cent was also expected at the official market.

“This is due to anticipated impact of the global oil market spiral on external and fiscal buffers which limits the central bank’s ability to support naira.

“In addition, if the US changes its monetary policy stance, there might be a reversal of capital flows and an erosion of some of the external reserves.

“It should be noted that on July 18, 2014, Goldman Sachs forecast that the naira will trade at N165/$ in three months, N175/$ in six months and N195/$ in 12 months.

Culled from: http://www.thisdaylive.com