By Chinwendu Obienyi and Chiamaka Ajeamo
Nigeria faces an undaunting prospect of having twin deficits in 2021 with attendant implications for the exchange rate, inflation and interest rates.
This was the view of Sigma Pensions Limited in its outlook of the economic and investment landscape in Nigeria.
According to the pension fund administrator, 2021 holds the promise of a return to a semblance of certainty and a vaccine aided V-shaped global economic recovery with Nigeria exiting recession while adding that external account imbalances will pose downside risks to the Naira.
“Given current policy settings around the exchange rate, we see limited options for financing the looming current account deficit and expect Naira weakness over the year.
“Alongside these FX pressures, we see soaring food prices, occasioned by an underwhelming 2020 crop harvest, border closures, higher electricity tariffs and petrol prices (following the move to remove gasoline subsidies) as fueling a surge in inflation towards 16 per cent levels in 2021”, the report said.
The outlook report noted that although the Central Bank of Nigeria (CBN) has ignored inflationary pressures and muddled through the FX situation over 2020, the economy’s return to growth and the need to stem the widening parallel market premiums will drive a shift to monetary tightening at some point over 2021.
It further added that fiscal imbalances loom large for the second consecutive year with the Federal Government proposing another record deficit (N5.2trillion) to be financed via large foreign and domestic borrowings.
“In summary, we view the prospect of increased vaccination across the world as helping to draw a line on the disruptive influence of COVID-19 on global economic activities.
“Despite the improvement in the external environment, Nigeria faces the prospect of twin deficits for another year with attendant implications for the exchange rate, inflation and interest rates”, the report stated.