Analysts at FSDH Merchant Bank Limited have advised the federal government to implement expansionary policies that would stimulate economic growth.
Looking at the recovery path in the first quarter 2018 Gross Domestic Product (GDP), the firm revised its GDP growth forecast for this year to 2.78 per cent, down from its previous forecast of 3.16 per cent.
According to a report by FSDH, major sectors that would lead the recovery in 2018 are: mining and quarrying, agriculture, manufacturing, trade, and information and communication.
â€œWe believe there are financing and investment opportunities in these sectors. The major downside risk to the recovery is the security challenge in some parts of Nigeria.
â€œThe expected growth in government spending in the second half of the year, once the 2018 budget has been signed into law, should increase economic activities, with positive impacts on the income of households and firms,â€ it stated.
In addition, it stated that the federal government would not be able to sustain the current rate which it borrows from the local debt market, saying yield would increase as the implementation of the 2018 budget commences.
The Head of Research at FSDH Merchant Bank, Mr. Ayodele Akinwunmi added: â€œFSDH Research also believes the yields on the NTBs may drop marginally from the current levels. However, the yields on the FGN Bonds may increase from the current levels as government begins the implementation of the 2018 budget. Consequently, yields on FGN Bonds may trend higher.â€
He also said the government would have to pay higher coupon to raise funds to finance the 2018 budget from foreign debt market as investors would prefer to invest US bonds, which are safer than Nigerian debt instruments.
â€œThe expected growth in government spending in the second half of the year, once the 2018 budget has been signed into law, should increase economic activities, with positive impacts on the income of households and firms,â€ he explained further.
He predicted that the federal government may source for about N1.05 trillion from the domestic bond market, despite its resolve to scale down its local debts and adding that it would all borrow about N901bn may from the international market to fund the budget deficit.
â€œFSDH Research believes that the FGN will finance the deficit through issuance of bonds (local and foreign) and this may put upward pressure on yields,â€ he maintained.
According to Akinwunmi, demand from foreign investors caused the country to experience the lowest Month-on-Month (M-o-M) growth rate in its external reserves since July 2017 last month.