Regardless of who wins the next Nigeria's presidential election, the West African economy is heading for further macroeconomic adjustment, according to Jan Dehn, Head of Research at Ashmore.

“The greater significance of the election is that the government will finally find room to get on with a much needed adjustment to last year’s decline in oil prices,” said Dehn.

Nigerians will go to the polls on Saturday, March 28.

Opposition candidate Muhammadu Buhari of the All Progressives Congress is leading in the polls against incumbent President Goodluck Jonathan of the People’s Democratic Party.

Dehn said: “Regardless of who wins, Nigeria is heading for further macroeconomic adjustment. We believe that the Nigerian Naira (NGN) needs to weaken another 10-15% and fiscal adjustment is sorely needed to reflect the smaller resource envelope (lower oil prices).”

This places the 2015 Budget in first place on the agenda of the next government.

Dehn said that adjusting to lower oil prices is not just an economic and fiscal challenge, it is also a major political challenge.

The Nigerian constitution gives Nigeria’s 36 states rights to a share of Nigeria’s oil revenues.

“Traditionally, the Federal Government has used the funds in the Excess Crude Account (ECA) to ‘buy’ political support from key states. This system is unlikely to change, but at the moment the ECA is running very low (about $2bn),” he said.

“For this reason, it matters a great deal that the election outcome produces a clear winner – strong political capital vested in the president means that less money has to be paid to the states in exchange for political support,” he added.

The monetary policy committee of the Central Bank of Nigeria (CBN) has maintained a neutral role in the run-up to the election.

Dehn said it is crucial to get the election out of the way to pave the way for the CBN to obtain space to do what is necessary, particularly on the FX side.

“With FX implied yields closer to 30% and liquidity in the FX markets very low, it is clear that Nigeria needs both higher rates and a weaker NGN,” he said.

Dehn said local assets are unattractive at current yields (14%-16% yield across the local curve).

“We expect that the government will allow the currency to adjust once the election is out of the way at which point local securities become attractive. As for sovereign credit, Nigeria’s sovereign blended spread is now just shy of 500bps. Given Nigeria’s low debt burden, external debt may become interesting provided that the government commits to adjustment after the election,” he said.

When speaking of risks, Dehn said that beyond oil prices, there is a risk that the election is irregular, resulting in an upsurge in political noise.

“Also, if the government fails to recognise the need for adjustment the macroeconomic challenges will only grow larger. On the other hand, we tend to assign less weight to Boko Haram and other security related problems. Boko Haram is a major problem in parts of Nigeria, but it is not a problem that has typically impacted the valuations of securities held by foreign investors, local banks and pension funds,” he said.