Ayo Teriba: 5% Inflation, Exchange Rate Stability In 2025 Achievable With Investment Act, Increased FDI

Chief Executive Officer of Economic Associates, Dr. Ayo Teriba has expressed scepticism on government’s target to reduce inflation from the current rate of 34.6% to 15%.

In an interview on ARISE News on Tuesday, Teriba suggested that such a drastic reduction would not be possible without significant action on foreign direct investment (FDI).

He further explained that inflation in Nigeria was primarily driven by a weak exchange rate, and without sufficient reserves, stabilising the naira and reducing inflation would be challenging.

“The lesson is that reserves are key,” he said, “5% inflation is possible next year… its possible, it’s a question of what government does…If the president can make the kind of efforts we are making on tax and finance acts, we make efforts to do an investment act and get 50 billion dollars in FDI over the next one year, exchange rate will improve and inflation will go to single digit.”

Teriba then shared his concerns about the 2025 budget, particularly in terms of borrowing, assumptions, and fiscal challenges facing Nigeria.

Dr. Teriba emphasised that the budget should not be viewed as an end in itself but rather as a tool designed to achieve specific growth, stability, and devaluation targets.

“The budget is not an end in itself, it’s a means to an end, it’s an instrument,” he explained. He pointed out that many of the so-called “budget assumptions” were actually the targets of the budget, not assumptions. If the government gets the budget right, the desired outcomes, including growth and stability, will follow.

When asked about the fiscal challenges in the budget, Dr. Teriba focused on the issue of debt and the cost of servicing that debt.

“You have spoken about debt, but you haven’t spoken about debt cost or interest payment,” he said. While acknowledging that these issues were inherited from the previous administration, he noted that the current government had continued to borrow despite its initial promise not to.

He warned that the country was borrowing inefficiently and pointed out that many other nations borrowed more heavily but at much lower interest rates, often using higher-grade bonds.

“Some countries of comparable size of economy borrow heavily than we do but they issue higher grade bonds, investment grade bonds…We borrow at some of the highest rates in the world, whether domestically or abroad. We shouldn’t create the impression that its about whether we should borrow or not borrow. Part of the crisis that we have, that a third of the budget that you have announced is going to go on interest payment alone, is that we borrow extremely inefficiently and that there are more efficient ways of raising liability.”

In response to the president’s statement that borrowing is not a “criminal enterprise,” Dr. Teriba agreed that borrowing itself was not inherently wrong but stressed the importance of issuing quality debt instruments. He criticised Nigeria’s practice of issuing “junk bonds” and said that it was important for the government to raise the quality of its debt.

“The foremost issue is the quality of the debt instruments that you issue,” he stated, suggesting that countries like Saudi Arabia and Malaysia raised funds more efficiently by issuing equity rather than relying solely on debt.

Dr. Teriba also discussed the challenges in optimising the budget, particularly given the significant debt burden inherited from the previous administration. He noted that much of the new borrowing appeared to be directed towards servicing interest payments rather than capital spending.

“The deficit is going to be 16 trillion, which means Nigeria is merely borrowing to pay interest,” he explained. He expressed concern over the country’s recent Eurobond issuance at a high interest rate of 10%, calling it “reckless.”

Addressing the issue of Nigeria’s reserves, Dr. Teriba questioned the government’s claims of having $42 billion in reserves. He pointed out that the figure often reported by the government was misleading, as the net reserves, which are crucial for exchange rate stability, were not disclosed.

“What matters for the stability of the exchange rate is the net reserves,” he said.

Faridah Abdulkadiri

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