International business research firm, Economist Intelligence Unit (EIU) in its country report for Nigeria indicated that the Federal Government is expected to raise the Value Added Tax (VAT) to 15 percent from the current 7.5 percent by 2027 to fund its fiscal deficit and debt service obligations, including social and job creation projects. The EIU said the deficit could widen to five percent of Gross Domestic Product (GDP) in 2024, slightly above the estimate for 2023. It said this was expected to average 4.5 percent of GDP annually between 2025 and 2028 – more than the legal limit of three percent of GDP and representing an unusually lax period of fiscal policy for the country. On the foreign exchange (FX) regime, EIU predicted the naira to weaken from N2,381 to the dollar, stating that the spread with the parallel market will be five percent to 15 percent.
The report stated, “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. “Any number of knocks to confidence could cause a sharper weakening. Alternatively, given the naira is increasingly appearing undervalued in real terms, the rate could end up stronger, if the CBN tightens monetary policy more aggressively than we expect.” EIU stated in the report that following a sizable real-term correction, naira’s outlook for 2025 was relatively stable, and might close at N1,817 to the dollar in the review year. The report added that persistently high inflation, deficit monetization, negative short-term real interest rates, low foreign reserves, and a backlog of foreign exchange orders would continue to sap confidence in the naira, despite a 45 percent devaluation in February.
