UK firm predicts new naira to dollar exchange rate in 2024

The Economist Intelligence Unit (EIU) has stated that the Federal Government is expected to increase the Value Added Tax to 15% to fund deficit and service debts, including social and job creation projects.

The international business research firm made this known in its Country Report for March 2024.

According to the firm, the deficit could increase to five per cent of Gross Domestic Product (GDP) in 2024, above its 2023 estimate.

They added that the projection is expected to rise to an average of 4.5% of GDP between 2025 and 2028, above the legal limit of three per cent of GDP, representing an unusual tax period for Nigeria.

On the Forex regime, the firm predicted that Nigeria's currency would depreciate to N2,381 per dollar, saying that the spread with the parallel market would be about five to 15%.

The EIU said continued high inflation, deficit monetisation, negative short-term accurate interest rates, low foreign reserves, and a backlog of foreign exchange requests would continue to drain confidence in the naira despite a 45% devaluation in February.

Before its revised forecast, the EIU had predicted that the naira would rally at N2,000 per dollar in 2024.

Per the report, Nigeria will use foreign loans to rebuild foreign reserves, adding that the naira will stabilise at the end of 2024. A report said the EIU said the exchange rate would become more potent if the Central Bank of Nigeria (CBN) tightened monetary policy more aggressively than expected.

It forecasted a new 100 basis points increase in the Monetary Policy Rate (MPR) to 23.75% from the current 22.75% in 2024.

EIU said: “Accounting for further near-term losses, we expect an end-2024 rate of N1, 770: $1, compared with about N1, 600: US$1 at end-February."

However, this forecast is finely balanced. The EIU prediction comes as the naira has remarkably recovered against the US dollar in the official market.

On Friday, March 16, 2024, the naira appreciated against the dollar, per data from NAFEM. The Nigerian currency traded at N1,602 per dollar against the N1,612 traded on Thursday, March 15, 2024. Traders quoted the spot rate for the dollar at a high of N1,615.50 and a low of N1,524,99 per dollar.