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The Central Bank of Nigeria (CBN) has indicated that the removal of fuel subsidies, reduced import expenses, and heightened external debt servicing requirements may present challenges to the growth of external reserves by the years 2024 and 2025.
This information was shared in the CBN's Monetary, Credit, Foreign Trade, and Exchange Policy guidelines for the fiscal years 2024 and 2025.
Nevertheless, the central bank's forecast anticipates a favorable economic growth trajectory for Nigeria during this period, driven by ongoing policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and the successful execution of the Finance Act 2023 alongside the 2022-2025 Medium-Term National Development Plan (MTNDP).
The Central Bank of Nigeria (CBN) has expressed an optimistic view regarding the country's external sector for the years 2024 and 2025, anticipating favorable trade conditions driven by a sustained increase in crude oil prices and enhancements in domestic oil production.
This positive perspective is bolstered by stable crude oil prices, which are influenced by production cuts, alongside benefits from capital inflows and remittances.
However, challenges such as reduced crude oil revenues, the removal of fuel subsidies, escalating import costs, and heightened external debt servicing could threaten the growth of external reserves.
Furthermore, the ongoing tightening of monetary policy by central banks in developed nations raises the potential for capital flight. Regarding Nigeria's economic growth, the CBN forecasts a continued upward trend in output for 2024 and 2025.
This growth is contingent upon ongoing policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and the successful execution of the Finance Act 2023 and the Medium-Term National Development Plan (MTNDP) for 2022-2025.
Nonetheless, the outlook remains vulnerable to various risks, including rising energy costs due to the ongoing impacts of the Russia-Ukraine conflict and persistent security and infrastructure issues, which could hinder growth in the near to medium term.
Domestic prices are projected to stay high throughout 2024 and 2025, influenced by global supply limitations and the effects of exchange rate fluctuations. Additionally, ongoing security and infrastructure issues may further intensify inflationary pressures.
The fiscal sector is anticipated to continue its positive recovery path during this period, contingent upon the successful execution of the Finance Act 2023 and the restructuring of essential revenue-generating agencies to enhance non-oil revenue.
Nevertheless, challenges such as low domestic crude oil output, increasing public debt, persistent insecurity, a global economic downturn, and the ongoing Russia-Ukraine conflict could present significant risks to fiscal operations in the near to medium term.
The financial sector is expected to maintain its resilience in 2024 and 2025, reflecting the Central Bank of Nigeria's proactive approach in monitoring potential vulnerabilities and risks within the system, which includes regular stress tests, examinations, and the implementation of risk mitigation strategies.