The disposable incomes of Nigerian consumers will be squeezed by the proposed increase of Value Added Tax and electricity tariff this year, an economic and financial expert, Mr Bismarck Rewane, has said.
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Rewane, who is the Managing Director/Chief Executive Officer of Financial Derivatives Company Limited, said the VAT hike (from five per cent to 7.5 per cent) would lead to higher commodity prices.
He said other challenges would include low income per capita (currently at $2,236), high income inequality and rising poverty rate in the country.
He spoke at the December edition of the LBS Breakfast Session on Tuesday.
“2019 was a year of political trepidation and growing uncertainties. Some Nigerians are happy to see the back of 2019 while others are pleased with the slow economic progress,” he said.
According to Rewane, 2020 will be a year of economic imponderables at both the global economy and domestic markets.
He said, “For Nigeria, consumers will groan about the hike in VAT, the restoration of tollgates and cost-reflective electricity tariffs.
“The good news is that the payment of the new minimum wage and the arrears would offer some succour to workers.
“Investors would also keep a close watch on the stock market and the impact of government policies on their portfolio strategy.”
Commenting on monetary policy outlook, he said the rising inflation and depleting external reserves would compel the Central Bank of Nigeria to maintain status quo on the Monetary Policy Rate, also known as the benchmark interest rate.
He said the CBN would only consider interest rate cut “when inflation enters a sustained downward trend and falls below the targeted upper limit of nine per cent.”
According to him, the apex bank will continue to employ unorthodox measures to stimulate lending as economic growth becomes a stronger consideration.
Rewane said the CBN would continue in its aggressive intervention at the foreign exchange market at the expense of external reserves, adding that it would likely impose more forex restrictions rather than devalue the naira in the face of growing external imbalances.
FDC analysts, on the other hand, in their latest bi-monthly update, said the continuous depreciation of the naira could be attributed to the absence of forex interventions by the CBN.
They said, “Further depreciation of the naira is likely to occur in light of depleting external reserves, which could limit the CBN’s ability to intervene in the forex market,”
They added that further depreciation of the naira could translate to higher prices.
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