Nigeria decides: Four things to expect in the post-Buhari economic environment

Nigerians headed to the polls on February 25th, 2023 in a transition election that will see a new President assume office following Muhammadu Buhari’s exit after two terms in office. It is our view that top of the agenda in Nigeria’s post-Buhari economic policy will be stepping up measures aimed at tackling the country’s inflation crisis. Inflation has run amok in the country and defied the Central Bank’s prescribed ceiling since 2015.

Here's what we expect in the near term:

1. The Central Bank will maintain a tight monetary policy stance with headroom for hiking the benchmark rate by a further 100.0 bps before the close of H12023. This notwithstanding, we expect inflation to remain broadly elevated due to a combination of factors such as the persisting high price of grains and other commodities; continued exchange rate pressures; and other legacy structural factors
2. The economy will continue to exhibit pent-up demand as the after effects of COVID-19 and the Russia-Ukraine war moderate gradually with time. We are likely to witness a build-up in demand pressure inflicting further upward nudge on the headline inflation figure. One factor pointing to this likelihood is the continued growth in money supply with broad money (M3) growth, having closed 2022 at 16.5%, having exceeded the 2022 provisional benchmark of 15.2%
3. Point No.2 stated, the demonetisation exercise which has taken place in the economy is bound to decelerate the momentum of money supply growth in the economy in 2023. In such a a heavily cash based economy, demonetisation is bound to have a significant impact on the economy
4. The economy faces a $500 million debt service bullet payment in July 2023 and the new administration will be eager to show that the country is still well within capacity to meet its debt obligations on time. Coming at a time when Ghana's debt restructuring programme has prompted investors to a risk-off stance regarding frontier market debt, Nigeria will be keen to show that the economy's fundamentals are still solid especially from a debt vulnerability standpoint