Nigeria's Budget a Bold Blueprint for Inflation and Growth by 2025
Investment Research Weekly Market Commentary | December 23, 2024
Welcome to this week’s edition of our stock market newsletter!
Green White Green Recap
Macro Update
Nigeria's Budget a Bold Blueprint for Inflation and Growth by 2025
The proposed 2025 budget is set at ₦49.74 trillion, with ₦13.39 trillion allocated to finance the deficit, which represents about 3.89% of the projected GDP.
The government’s fiscal spending plan is based on ambitious macroeconomic assumptions, including:
Crude oil production of 2.06 million barrels per day (mbpd).
An exchange rate of ₦1,500 to US$1.
Inflation is expected to drop significantly and settle at 15% by 2025.
In terms of sectoral allocations, the Defence & Security sector takes the largest share at 7.83%, followed by Education at 5.07% and Health at 3.94%.
Key takeaways:
The ₦1,500/US$ exchange rate target is ambitious but could be achievable if strategies to boost foreign exchange and stabilise the economy succeed.
Achieving the 15% inflation target by 2025 will be tough unless issues like supply chain disruptions and rising production costs are addressed.
The crude oil production goal of 2.06 million barrels per day is also bold, needing a 35.5% increase from 2024's average. While challenging, it’s possible if security and investment issues are resolved.
The budget heavily focuses on recurring costs, with one-third going to debt servicing and nearly 30% for non-debt recurrent spending, including the new minimum wage. This leaves limited room for funding social services and infrastructure, as debt servicing takes up a larger share than other areas.
FX Update:
CBN data revealed that the Nigerian naira strengthened against the dollar and closed at 1,536.93 on Friday
The naira closed at N1,536.93 per dollar in the official market. The naira’s value remained relatively stable at N1,660 in the black market. The naira strengthened by approximately 0.20%.
To meet the seasonal FX demand, the Central Bank of Nigeria (CBN) has granted Bureau de Change (BDC) operators temporary permission to purchase up to $25,000 weekly in Foreign exchange (FX) from the Nigerian Foreign Exchange Market (NFEM) and they are expect to adhere to a maximum 1% spread when pricing FX for retail end users.
Meanwhile, external reserves went up by 0.64% from $40.53 billion recorded in the previous week to $40.79 billion.
Key takeaway:
Long-term investors should look past the volatility in the currency and focus on consistently investing regardless of the exchange rate level.
Remember to save dollar-based goals in dollars, which can be done with apps like Ladda.
Equities Update:
The Nigeria Exchange (NGX) All-Share Index (ASI) wrapped up the week with a loss, breaking an impressive eight-day winning streak. Despite closing at -0,12%, the ASI still managed a solid week-to-date gain of 1.76%, pushing its year-to-date returns to an impressive +35.25% in naira terms
Sector Highlights (Week-on-Week):
Performance across sectors was mixed. The Oil and Gas sector made a modest gain of 0.99%. The Consumer Goods sector gained 2.92%, and the Banking sector topped with 3.23% gain.
Conversely, the Industrial Goods sector recorded a 2-week consecutive loss, closing at -0.86%.
Key takeaways:
Long-term investors may benefit from US exposure, particularly the S&P 500, which has delivered a 24.34% year-to-date dollar return.
Until Nigeria’s macroeconomic conditions stabilise, diversifying into US markets makes sense.
Fixed Income Update:
Mixed Trends in Treasury Bills
Here’s what’s happening with treasury bills and bonds:
Short-Term Treasury Bills:
The 91-day treasury bill yield went up to 26.04% from 25.63%.
The 182-day treasury bill yield nudged down slightly to 25.07% from 25.21%.
364-day Treasury Bills are on the Rise:
The 365-day treasury bill yield nudged down slightly to 26.65% from 26.78%.
Bond yields climbed to an average of 19.06% from 19.04%.
Key takeaways:
Treasury bill yields remain high, a good option for short-term savings goals.
You can invest in treasury bills to save for your short-term goal on rent, schools, fees, etc. through Ladda, a fintech app that helps you save at high returns.
For your long-term goals, we do not recommend naira treasury bills and bonds.
Star-Spangled Banner Recap
The Fed Cuts Rates
This month, the Fed cut rates by 0.25% to support the labour market. The news initially caused markets to drop nearly 3%, but signs of recovery have already started to appear.
The S&P 500 made a rebound and closed with 1.09%, with a year-to-date of 24.34%. We saw the ripple effect of the tariff announcement by the US President-elect on European equities, as the FTSE 100 slid about -0.26%. Meanwhile, the MSCI World Index, a broad measure of global equities, gained about 0.74%.
Key takeaway:
Despite the Fed cut, the S&P 500 has gained 24.34% YTD, reflecting the strong US economy despite ongoing policy uncertainties. The US equities market offers a strong diversification option for investors.
Remember to always save for your dollar goals in dollars. You can do this with us on Ladda—a fintech app that helps you save at high returns.
We hope you find this edition insightful, and as always, stay focused on your financial goals!
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