2024 Budget: N750/$ Rate, A Tall Order – Uwaleke

• Capital market expert Uche Uwaleke expresses reservations about President Tinubu’s 2024 budget, citing challenges in achieving the N750/$ exchange rate target
• Uwaleke suggests a dual exchange rate regime to manage budget variances and advises diversifying financing sources to mitigate economic risks

Professor Uche Uwaleke, an expert in the Capital Market, has expressed reservations about the exchange rate parameter in the recently presented 2024 budget by President Bola Tinubu. While acknowledging the budget’s potential benefits for the economy if effectively implemented, Uwaleke deemed the N750 to the dollar rate a challenging target.

President Tinubu unveiled a budget estimate of N27.5 trillion last week, featuring various parameters, including an exchange rate of N750/$. Uwaleke highlighted that the proposed exchange rate might pose challenges due to the uncertainty introduced by a floating naira in the context of weak supply and strong demand, leading to forex market volatility.

He commented, “It’s most likely the exchange rate that will be the major cause of wide budget variances in the 2024 budget on account of NAFEM operations.” He emphasized the potential impact on the dollar-denominated components of the budget, particularly in defense spending and recurrent debt expenditure, stating that a volatile and high exchange rate could escalate the cost of servicing external debt and widen the budget deficit.

Uwaleke suggested the implementation of a well-structured dual exchange rate regime, with one official rate for debt service and another for other transactions. He argued that this approach could enhance certainty in government procurements and short-term planning.

Addressing the financing structure of the over N9 trillion deficit, Uwaleke expressed concern about the dominance of domestic borrowing, accounting for about 78% of the N7.8 trillion provisioned for new borrowings. He warned that this imbalance could crowd out the private sector, raise interest rates, increase the cost of funds, and lead to a shift of investors from equities to fixed-income securities, consequently weakening the productive sector.

Uwaleke advised the government to explore opportunities for concessional project-tied loans from multilateral and bilateral sources to diversify financing options and mitigate the potential adverse effects on the economy.