UK Firm Predicts New Naira to Dollar Exchange Rate in 2024, Says FG May Increase Tax on Luxury Items

• International business research company, the Economist Intelligence Unit (EIU), has predicted a new exchange of the naira to the dollar in 2024
• The EIU said the naira is expected to depreciate above the N2,000 per dollar threshold in 2024 before finally stabilising
• The company stated that the Nigerian government is expected to raise the Value Added Tax (VAT) to 15% from the current 7.5% to meet current demands

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.

The Economist Intelligence Unit (EIU) has said the Nigerian 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 disclosed this in its Country Report for March 2024.

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Naira to depreciate again in 2024

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

The EIU said 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 research firm predicted that the naira 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.

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

Nigeria to embark on more borrowing

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.

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Nigeria considers possibility of ECOWAS single currency as naira dips

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.

Naira to dollar rate closes gap

Legit.ng had reported that the official and parallel markets' foreign currency (FX) gap was recorded at zero (N0.01), with the dollar's quote on Wednesday being N1,615 across markets.

According to data, the dollar was quoted at N1,615.94 on the FMDQ Securities Exchange, while it was quoted at N1,615.93 on the parallel market, also known as the black market.

The dollar was quoted at N1,615.94 on Wednesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), down from N1,603.38 on Tuesday, causing the naira to lose 0.78 per cent of its value.

Source: Legit.ng