Culled—Proshare

October 14, 2016/FBNQuest Research

No recovery of note before 2018

We see the economy contracting by -1.7% y/y in Q3 and flattish in the fourth quarter. For the full year we expect a rate of -1.0% y/y, and very modest growth for 2017. The thinking is that the authorities have no choice but to reach a deal of sorts over the Niger Delta, and that the fiscal provides some boost.

Some cheer from revenue collection

There has been a trend increase in FAAC payouts over the past three months, driven by the devaluation and stronger non-oil revenue collection. This should allow a pick-up in the FGN’s capital releases.

A risk from fiscal expansion to flag

The 2016 budget has domestic debt service at 34% of revenues. The FGN sees net domestic issuance of a further N2.5trn in the 18 months to end-2017. A potential trap lies ahead, and it is as well that domestic institutional demand for FGN bonds is solidly based.

Fx market not functioning as planned

We struggle to see autonomous fx inflows on a scale to complement the CBN’s small daily offerings and create a fully functioning market in the quarter ahead. The various solutions are either not large enough to make an impact or politically unacceptable. The exchange-rate regime should be characterised as drifting rather than floating.

An inflation focus for monetary policy

The MPC/CBN have seemingly abandoned tightening to entice offshore portfolio investors. Their narrative is that their ammunition is almost exhausted, and fiscal/structural measures must led the economy out of recession. Their next steps will be to track inflation on its downward trend.

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