Worried by the parlous state of the economy, especially the unprecedented fall in the value of the nation’s legal tender in recent times, a cross section of experts have suggested practical measures which they hope would help to address the drift of the naira, reports IBRAHIM APEKHADE YUSUF.
The joke out there is that it is better to hold on to a piece of paper than to the naira!
The above analogy really captures the frustration with the naira and how it is being treated by many today because of its worthless value when compared to other legal tenders out there, especially the green back.
Indeed, the legal tender has had a run of bad luck lately as pressure mounts on the naira.
As at the time of filing this report at the weekend, one dollar exchanged for N1, 400 in the black market.
The previous week has been just as bad. Independent checks by The Nation last week revealed that the US dollar exchanged for ₦1,323.630 to the naira, British pound ₦1,652.0511, with euro going for N1,412.0091, Canadian dollar ₦981.293 and wait for this: South Rand exchanging for N47.55 to the naira!
Expectedly, the noise and agitation with the naira has reached a high decibel so loud that even the deaf can hear!
From the economic managers to other concerned stakeholders the one thing that bugs their mind is how to change the fortunes of the naira back to the good old days when the naira had such a store of value that it was a status symbol of sorts for people to be seen with wads of the naira both home and abroad!
A raft of policies that may lift the naira
With the benefit of hindsight, analysts who have been watching the way the economic pendulum is swinging have already seen the light about a promise of a new dawn.
Razia Khan, managing director and chief economist, Africa and Middle East Global Research at Standard Chartered Bank, said in a note, that “We expect donor support and external borrowing to boost FX reserves,”
She said the World Bank is expected to approve about $1.5 billion of budget support under the 2023 budget, adding that a similar amount is likely to be available for 2024.
Specifically, she said: “Nigeria hopes to draw on World Bank project financing of about $1.9 billion, although this may occur only in the medium term. Authorities hope that oil-backed borrowing from Afreximbank (sometimes described as the forward sale of oil), a syndicated loan for Nigeria LNG, and support from Middle Eastern sovereigns will allow them to meet an aggregate FX inflow goal of about $10 billion, allowing the CBN to clear its verified FX forwards settlement backlog and stabilise the market.
“Authorities also hope that plans for banking-sector recapitalisation will attract new flows.”
Like Khan, Dr Muda Yusuf, renowned economist said the outlook for foreign exchange would be influenced largely by developments around the fundamentals of supply and demand of foreign exchange.
He said the supply side would be driven by some variables, such as the prospects of attracting more investment into the oil and gas sector, especially leveraging the Petroleum Industry Act and growth of diaspora remittances and other inflows from foreign direct investment and foreign portfolio investment.
Yusuf, a former president of the Lagos Chamber of Commerce (LCCI) and Director, Centre for Promotion of Private Enterprise (CPPE), said the clearing of foreign exchange backlog by the CBN would impact on investors’ confidence and improve inflows in the medium to long-term.
Other variables, according to Yusuf, include growth in non-oil exports leveraging new initiatives to boost investment in solid minerals and improve domestic capacity to export, initiatives by the government to boost forex liquidity through crude oil forward sales by the NNPC and steps taken to securitise NLNG dividends to generate short-term forex liquidity.
How naira can regain its lost momentum
Also in the view of Eben Joels, Managing Partner, Stransact Audit and RSM Corresponding partner in Nigeria, would rather the government take the bull by the horns if it truly desires to revive the naira from its present slumbering state.
“The government should summon the same political courage it used to remove fuel subsidies to eliminate the sale of dollars on the streets,” he said, adding that “The USD should only be held by banks and changed into Naira via bank accounts at a market determined rate. If we can implement a cashless policy for the Naira, we should be able to do the same for the USD held in cash by private individuals.
“The current black market scenario has made cash forex holdings the major avenue for money laundering in Nigeria. As the Naira fluctuates, most upper-class Nigerians now hold their liquid assets in forex here in Nigeria. Of course this is not the major. Until we stop importing fuel, and increase our forex earnings significantly, the Naira will continue to be unstable.”
Echoing similar sentiments, Mazi Okechukwu Unegbu, who is currently Managing Director/Chief Executive, Maxifund Investments and Securities Plc noted that a drastic solution is required to rein in the crisis with the naira.
“I think we must start thinking of the cooperation between the CBN, the Ministry of Finance and the NNPCL. For instance, if the NNPCL is selling crude, is the money coming in? So, these are questions we need to ask. If they can be able to answer some of these questions, then our crude money is coming in and it will help to boost the exchange rate.”
While proffering specific solutions to the revamping of the naira, Unegbu reiterated that if sales of the crude come directly into government coffers, it will ease the pressure on the naira.
“As I have been saying, we should start pricing our crude oil in naira. I am sure it will help. The argument is that people will not buy, but I’m sure it will give the naira some edge because we start looking for the naira to exchange for crude and that would help our reserve. So, if the CBN can look at that, that would be very good,”Unegbu maintained.
A bird’s eye view of how to resolve the naira devaluation imbroglio
In the view of Peter Sunday Adebola, the Managing Director, Edgefield Capital Management Limited, an investment-driven firm, the depreciation of Naira against other convertible foreign currencies has been a nightmare to government at various levels, professionals, academia’s and businessmen.
According to him the fault lies squarely with the managers of the economy who have failed in the quest to improve the revenue-generating capacity of the country outside oil.
“For an import-dependent country like our country Nigeria, it cannot be anything else other than a headwind for our economic growth. Many professionals, finance experts and academia have been talking about this economic menace and are working assiduously to find solutions to the problem.
“Simple economic principle tells us that if the price is going up, then demand must be higher than supply. To maintain market equilibrium, the forces of demand and supply must be the same. The problem here with our currency is that the demand for foreign currencies is higher than the supply, most especially the United States Dollar.”
One best way to actually tackle this problem of currency depreciation is to look at both the demand side and the supply side.
“The group of people looking for US Dollars include: people paying for school fees abroad, importers, travelers, medical tourists, businessmen and speculators.
“Unfortunately, Nigeria does not have publicly available data to know the demand size of these groups of people. On the supply side, we only have the government exporting our crude oil and other exporters of non-oil products as well as diaspora remittances.”
To resolve the disequilibrium in the foreign exchange market, the market needs to be more transparent and seriously regulated, he stressed.
“If we can reduce the demand and increase the supply, then the problem will disappear. The following are my suggested ways of arresting the wildlife depreciation of the nation’s currency.”
Like Joels, Adebola have argued that a more frontal approach to tackling the issue of the naira depreciation should be adopted.
“The foreign exchange market should be sanitised. It is absurd to see people hawking currencies on the road side in the name of black market. The black market should be eliminated. It is only in Nigeria that people sell besides roadside, you cannot find that in a sane country even in Africa. You cannot buy dollars by the roadside in South Africa or even in Ghana. Why are we allowing this in Nigeria? These informal markets make it difficult to get accurate data of the foreign exchange transactions in Nigeria and this gives room for round-tripping and unjustifiable speculations. All foreign exchange transactions should be formalised.”
The renowned stock market analyst reiterated that selling of foreign currencies across the street should be criminalised with stiff penalties, noting that this will force everybody to do transactions with registered bureau de change or banks.
Pressed further, the onetime Managing Director of one of the BGL Group noted that if hospitals are well-equipped, this will reduce medical tourism just as he argued that if the nation’s education system can be revamped and meet global standards, then the demand pressure for US Dollar to pay school fees will be reduced.
On the diversification of export base, he said the country is blessed with other natural resources such as agricultural and mineral resources which can be explored, refined and exported.
Experts have called on the Federal Government to secure long- term foreign loans to clear foreign exchange (forex), foreign portfolio investors and airlines trapped fund.
The Association of Bureau De Change Operators of Nigeria (ABCON) President, Aminu Gwadabe, recently declared that the $2.2billion prepayment facility from the African Import Export Bank (AFREXIMBANK) is not enough to stabilise the market.
According to him, the $2.2billion crude oil prepayment facility released by the African Import Export Bank (Afrexim bank) is not enough to stimulate the market.
Gwadabe had said: “The $2.2billion Afrexim bank crude prepayment facility is a welcome development but I don’t think it’s enough to stimulate the market considering the situation because if we put $2.2billion into the market, we have been seeing demand in the I&E window alone ranging from $150million to $250million daily so, in 10 days, the $2.2billion will be exhausted. Speculators will speculate and we will run it out between 10 and 15 days.”
However, on how to make the market liquid, the founder, Cowry Asset Management Limited, Johnson Chukwu, said the only long-term loan is that with a span of at least five years.
According to him, that would help the government plan the repayment as well as stabilise the foreign exchange market.
“An option is to arrange a long-term loan that its latest repayment won’t be less than five years so that the government can clear the arrears and it also make the government stabilise the foreign exchange market before repayment.
“There are matured forward of about $6billion,there are money owned airlines, foreign portfolio investors and so on, so the money owed will determine the loan that would be needed to pay the outstanding debt and make the market liquid,” he said.
Also, Kunle Olasanmi, said expected inflows from external borrowing, donor support, oil production, and sales receipts would stabilise the FX market.
According to him, a stronger naira will attract foreign investment, encourage local businesses to expand, increase the purchasing power of households.
“Long-term loan from the International Monetary Fund (IMF), Middle East, among others, will make the government settle all the outstanding obligations and as well stabilise the market,” he stated.
The naira yesterday crashed to a record low of N1,370 /$ at the parallel market, inching closer to N1,400/$ rate.
The depreciation of the local currency was mainly as a result of shrinking dollar supply from the Central Bank of Nigeria (CBN), authorised dealers (mainly commercial banks) and autonomous market sources.
The local currency traded at N1,365/$ at the parallel market on Tuesday but was relatively stable at the official market where it exchanged at N882/$, data from the FMDQ Exchange showed.
A BDC operator in central Lagos, Tamiu Abiodun, said the naira will continue to fall, unless there is urgent policy change that increases dollar liquidity.
“It is a matter of demand and supply. The demand for dollar keeps rising everyday, without commiserate supply from authorised dealers or the Central Bank of Nigeria,” he said.
The naira fall continued despite uptick in crude oil prices. Brent is trading at $79bp after the Energy Information Administration (EIA) forecasts tighter markets on slimmer OPEC+ output.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, advised the Federal Government to enhance financial intelligence by tracking people with proceeds of corruption to sanitize the market.
He said many of the people with proceeds from corruption are the ones putting pressure on the forex market through their manipulative actions.
“The naira is depreciating not by forces of demand and supply, but by the collective action and impact of the people with illicit funds,” he said.
Former Executive Director, Keystone Bank Limited, Richard Obire said the weakness of the naira over time has been caused by two broad issues linked to the quality of leadership and governance.
He said Nigeria’s heavy and skewed outward-oriented consumption of goods and services as seen in decades of long substantial bills for food and energy imports remains a hindrance to naira stability.
Also, the massive corruption-driven capital outflows which in turn severely damages Nigeria’s capacity to produce at scale that will enable the country to fully engage its large population to create widespread prosperity works against the naira.
On ways to strengthen the naira, he advised that in the short-term, there is need to find non-market damaging ways to increase the supply of hard currencies and reducing the demand for same.
He said that insecurity hampering food production needs to be tackled with a sense of urgency and effectiveness.
“Priority should be given through deploying pragmatic incentive programs to drive up the volume of food products for domestic consumption and industrial use to reduce our food import bill. All government consumption expenditures requiring the use of hard currencies should be suspended indefinitely, starting now,” he advised.
In recent years, Nigeria has grappled with a myriad of challenges that have left a significant imprint on its economy. From the scarcity of the naira to a substantial depreciation of the local currency, surges in inflation figures to the imprudent printing of nearly N24 trillion through Ways and Means, the macroeconomic landscape has been under threat. Amidst these setbacks, however, there were notable bright spots. Domestic oil production, as per the OPEC survey, rose to 1.41 million barrels daily. The equities markets exhibited a stellar performance last year, recording a remarkable 45.9% surge, the highest since 2020. Furthermore, Moody’s upgraded its outlook for Nigeria from stable to positive. Assistant Business Editor COLLINS NWEZE writes that this collection of milestones underscores the resilience of the domestic economy against formidable odds and reflects the commitment of the Central Bank of Nigeria (CBN) to effect positive change, exemplified in the ongoing settlement of FX Forwards.
This is not the best of time for the naira, inflation and other microeconomic indicators. The naira has remained under pressure, falling to an all-time low of N1,350/$ at the parallel market. Inflation also rose to 27-year high at 28.92 per cent in December. Unfortunately, these statistics were foretold by people that gauged the state of the economy earlier on.
Few weeks into the life of the present administration, former Central Bank of Nigeria (CBN) Governor, Prof. Charles Soludo, gave a prophetic insight into the state of the economy inherited by President Bola Tinubu. Soludo, now Governor of Anambra State, talked about the breach of the CBN Act 2007, in assessing the Ways and Means. He narrated how the previous CBN leadership freely printed the naira that was not backed up by any productive activities. At the end, he liked the economy to a “dead horse standing.” “From the microeconomic point of view, the present government inherited dead economy,” Soludo declared.
Unfortunately, and as predicted, nearly eight months down the line, the Soludo’s “prophecy” has played out in key segments of the economy. At the Investors and Exporters window – the official market – the local currency traded at N930 to a dollar, creating N420 per dollar premium between the official and parallel markets. This depreciation marks the lowest the naira has come to since October 26, 2023, when it reached N1,300 against the dollar on the parallel market. Aside naira crash, inflation has also continued to rise in recent months.
Consumer inflation rose for the 12th straight month in December to 28.92 per cent year on year from November’s 28.20 per cent, the National Bureau of Statistics (NBS) said. It was the highest inflation rate in more than 27 years as surging food prices exacerbated a cost-of-living crisis. Nigeria’s inflation figure has not climbed this high since mid-1996. The food inflation rate, which accounts for the bulk of the inflation basket, rose to 33.93 per cent in December from 32.84 per cent a month earlier. The statistics office said prices rose for a broad range of food items, including bread and cereals, oil, fish, meat, fruit and eggs.
Analysts say higher fuel prices and a weaker naira have also stoked price pressures. Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said inflationary pressures are unlikely to abate soon. He said the impact of naira depreciation and removal of petrol subsidy will continue to push inflation figures up in the medium to long term.
Soludo had predicted what is happening. “I am the Governor of the Central Bank and I met the exchange rate at about N138/$. The rate moved down from N138/$ to N120 to N118/$ and actually came down to N112/$ before the global financial crises of 2008 and 2009. And I met $8 billion as external reserves, and built it to all time, almost $63 billion that we had. In spite of payment of $12 billion in external debt, and going through the worst financial crisis in history, I still left behind $45 billion. So, I have seen it up, and seen it down.”
Continuing, he said: “We must realise where we are coming from; we sat here in this country and saw monetary authorities, literary printing money, illegally printing money. I superintended the drafting of the 2007 CBN Act, which had an explicit clause that prevents the Central Bank from recklessly granting Ways and Means to the Federal Government. We explicitly put it into law, that you cannot grant more than five per cent of the previous year’s actual revenue as Ways and Means.
“That so granted, must be retired at the end of the year, in which it is granted, and when the Federal Government fails to retire the fund, the Federal Government is forbidden advancing Ways and Means. By that law, I do not think there was a time that the Ways and Means would have been more than N250 billion at a point in time. As a Governor, I insisted that we must remain within the ambit of the law. But we sat and saw the Central Bank, brazenly, and illegally violating that Act year in year out, and kept printing money illegally,” he stated.
Former CBN Deputy Governor Operations, Tunde Lemo, agreed with Soludo. Lemo said inflation was being fuelled by rapidly growing CBN’s Ways and Means worth N24 trillion. He spoke at the seventh Financial Markets Dealers Association (FMDA) Annual Conference held in Lagos. Lemo, who spoke on the “Role Central Bank in Macroeconomic Stability & Financial System Supervision,” disclosed that Ways and Means grew from N239 billion in 2013 to N24 trillion in 2022.
He further linked high inflation to structural factors such as infrastructural deficit, high logistic costs and exchange rate depreciation. Lemo said the ongoing foreign exchange reforms, which paved the way for a fully liberalised FX market, is laudable, but more efforts should be geared toward improving FX availability to reduce the rate of currency depreciation and inflation pass-through. “Good as forex liberalisation may seem, care should be taken to prevent foreign exchange crisis because of forex liquidity scarcity. CBN should also watch the activities of forex speculators. Nigerian naira is not internationally convertible. CBN should therefore use “Managed-float” for its forex management,” Lemo advised .
Continuing, he advised the apex bank to drop its quasi-fiscal activities and focus on price stability. He said the overarching purpose of the central bank’s financial system supervision is to establish and maintain a stable and well-regulated financial system. “The central bank notably uses prudential and macro-prudential regulations to ensure financial stability as these regulations are instrumental in maintaining the stability and resilience of the financial system,” he stated.
According to him, the regulations include capital adequacy requirements, liquidity requirements, risk management practices, stress testing, and credit and market risk management. Lemo advised that the CBN should continuously care for the domestic financial system stability and interact with the macroeconomic stability conditions of the country. For instance, the Federal Government is envisaging achieving a US$1 trillion economy by 2030; hence, the financial system needs to be prepared and buoyant enough to meet the liquidity needs of this envisioned economy.
“The CBN Governor addressed this at the Chartered Institute of Bankers of Nigeria (CIBN) dinner on November 24 that banks will be required to raise additional capital to finance the march to $1 trillion economy. It is, therefore, imperative that the CBN collaborates with the fiscal authorities to achieve its price and financial stability objectives,” Lemo said.
The collaboration, he advised, should be such that one jurisdiction recognises the limits of the other to allow more room for operational independence. Continuing, Lemo said: “Nigeria’s external reserves have not been sufficient to curb the weakening of the naira. There was a rapid depreciation of the official exchange rate from N157.31/US$1 in 2013 to N253.49/US$1 in 2016. This led the CBN to introduce certain measures that restrict the buyers of about 40 items from access to foreign exchange at the official market.
This attempt led to the short-term devaluation of the exchange rate to N305.79/US$1 in 2017. The COVID challenge and significant shortfall in government revenue encouraged CBN to embark on massive intervention funding.
“The intense defence of the naira by the CBN using external reserves helped to stabilize the exchange rate between 2017 and 2019. Moreover, the post-COVID-19 period was characterized by the insensitivity of external reserves to rising oil prices and further currency devaluation. This quasi-fiscal activity fuelled inflation and has been consistently criticised by International Monetary Fund and other development partners.”
Steps to rescue economy
Against all odds, President Tinubu courageously started series of bold reforms many considered long overdue. The reforms were unveiled and their implementation took off immediately. Ranging from subsidy removal to some “housecleaning” at critical institutions to exchange rate unification, tax reforms and transparency in government. Exchange rate reforms directed by President Tinubu saw the Central Bank of Nigeria (CBN) unifying all multiple rates into the Investors and Exporters (I&E) forex window.
The policy saw the apex bank collapse exchange rates – the International Air Transport Association (IATA) rate, parallel market rate, Interbank Exchange Rate and Bureaux De Change (BDC) rate – into the I&E window. By that singular move, dollar applications for medicals, school fees, Business Travel Allowance/Personal Travel Allowance, and Small and Medium Enterprises (SMEs) are processed through the I & E window – where rates are determined by market forces. The operational changes to the foreign exchange market also include the re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window.
Chief Executive Officer, Ministry of Finance Incorporated, Dr. Armstrong Takang, said the Federal Government took the right step by instituting forex reforms and freeing forex previously used to defend the naira. Speaking at the unveiling of the Nigerian Banking Sector Report titled: “Getting Nigeria to Work Again!” in Lagos, he said government had in the past, lost so much forex trying to defend the naira. Defending ongoing reforms in the forex market, Takang, who represented Minster of Finance & Coordinating Minster of the Economy,
Wale Edun, said the implementation of the ‘willing buyer, willing seller’ model has preserved forex for the economy.
He said that in its effort to unlock forex liquidity, the Federal Government is encouraging people with genuine forex to bring them back home for investment in the domestic economy. On his part, Managing Director, Afrinvest West Africa Limited, Ike Chioke, advised monetary and fiscal authorities to rethink their anti-inflation strategies to holistically addressing the ugly narrative of surging inflation rate. He explained that both the monetary and fiscal authorities have mainly been fixated on the control of money supply and selective tax reliefs.
“In our view, an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks (notably, insecurity and infrastructural gaps), improves ease of doing business, and incentivizes large-scale local production of agriculture and manufactured goods alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate (MPR).
“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy,” he said.
Traders on the Nigerian Exchange (NGX) trading floor, Lagos
According to the report, Nigeria’s fiscal deterioration has continued unabated. After hitting the N70 trillion mark in 2022 due mainly to the N23.7 trillion addition from securitised Ways & Means liabilities, the total public debt profile nudged higher to N87.4 trillion in the first half of last year. “This, in addition to underwhelming revenue performance in first half of 2023 (actual revenue, N4.1 trillion, underperforms pro-rata target by 26.5 per cent, and 99 per cent of it, N4 trillion was used to servicing debt) has further put Nigeria on the cusp of insolvency.
“Against this backdrop, the new administration of President Bola Tinubu has introduced some policy measures to assuage the fiscal pressure, notable amongst which are the “partial” removal of subsidy payment on Premium Motor Spirit-PMS, the increase in education tax by 50 basis points to three per cent, and the introduction of a 7.5 per cent Value Added Tax on diesel,” the report said.
Despite these measures, Afrinvest said it does not see a quick fix to the fiscal pressure in the near-term, given increasing internal and external pressure points on the economy and the time lag required for policy reforms to manifest gains. Besides, the Federal Government has equally approached the World Bank for $1.5 billion budgetary support loan to boost dollar liquidity and support naira’s recovery.
Minister of Finance and Co-ordinating minister for the Economy, Wale Edun, said although the loan request is currently at the discussion level, government is confident it will be approved. The fund is also expected to help the country ease a severe dollar shortage that has contributed to the naira’s steep decline. “We’re hoping to get $1 billion or $1.5 billion from the World Bank” for budgetary support, Edun said on Wednesday in a Bloomberg Television interview. “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.”
But a lack of dollars in the domestic market means there’s a backlog of demand from companies who want to convert naira into the US currency to repatriate profits and pay bills. That’s pushed activity into the unofficial market, where the naira changes hands at much weaker levels against the dollar. Edun said the central bank puts the current backlog at about $5 billion, following efforts to pay it down, and he voiced confidence that it could be cleared easily if steps to lift oil revenue and mobilize dollars already in the economy succeed.
“There is actually liquidity within the banking system and there should be a way of getting the banks to actually help with that backlog, either on a spot or a forward-rate basis,” he said. “We believe that if we coral the dollars that are available, we can pay down that backlog almost in one fell swoop.”
The government expects oil production to ramp up to 1.78 million barrels per day, from about 1.49 million barrels last month, which should help fire up the economy and bolster its coffers. Domestic refining of crude is meanwhile expected to resume this year at the state-owned refinery in Port Harcourt, and from the Dangote refinery in Lagos, which will reduce gasoline imports and help ease the currency squeeze.
“The priority is to stabilise the naira, that means getting in the additional liquidity – number one from oil revenue,” Edun said. “We’re also looking to make sure we tap Nigerian savings, in particular domestic dollar savings both inside and outside the formal market. There’s a lot of cash in the Nigerian economy.”
CBN steps in
The CBN never stood idly watching the naira slide into oblivion. The regulator took certain stringent measures, including imposing some currency control measures to save the naira. CBN Governor, Olayemi Cardoso, admitted that a thorough assessment of the economy revealed significant challenges, including high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
These challenges, he said, have led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation has affected asset quality and solvency ratios. Additionally, the persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures. “I want to assure you that while it is indeed a formidable challenge, it is not insurmountable. With the right policy measures, we can overcome these obstacles and pave the way for progress and prosperity. I am confident and optimistic that by taking appropriate corrective actions and strategic steps, we can restore macroeconomic stability and address fundamental flaws,” he said.
Cardoso explained that the removal of petrol subsidy and the adoption of a floating exchange rate, among other government policies, are anticipated to have positive effects on the economy in the medium-term. These measures, he said, are expected to enhance investor confidence, attract capital inflows, stimulate domestic investment, and ultimately improve the level of external reserves. Additionally, they are expected to contribute to the stabilization of the domestic currency.
Cardoso disclosed that the monetary authority is taking measured and deliberate steps to send the right signals to the market and achieve our 26 mandate. “To ensure stability, curb speculation, and restore confidence in the foreign exchange market, we have initiated the payment of unsettled forward foreign exchange obligations, and these payments will continue until all obligations are cleared. This intervention has already had a positive impact on liquidity and has led to a significant appreciation of the exchange rate at certain points.”
In fulfilment of its commitment to eliminate the backlog of pending matured foreign exchange in Deposit Money Banks (DMBs), the Central Bank of Nigeria (CBN) has disbursed approximately US $61.64 million to foreign airlines through various banks. This initiative is part of the CBN’s efforts to decrease its remaining liability to the airlines. This information was confirmed by the Acting Director of the Corporate Communications Department at the CBN, Mrs. Hakama Sidi Ali, in Abuja.
Mrs. Sidi Ali further disclosed that, in the past three months, the CBN has also redeemed outstanding forward liabilities amounting to almost $2 billion. This underscores the Bank’s commitment to the resolution of pending obligations and a functional foreign exchange market. According to her, these payments signify the CBN’s ongoing efforts to settle all remaining valid forward transactions, with the aim of alleviating the current pressure on the country’s exchange rate. It is anticipated that this initiative by the CBN should provide a considerable boost to the naira against other major world currencies and further increase investor confidence in the Nigeria economy.
More so, part of the ongoing move to stabilise the naira was the CBN lifting of a ban on transacting in cryptocurrencies. It insisted that global trends had shown a need to regulate such activities. The regulator had in February 2021 barred banks and financial institutions from dealing in or facilitating transactions in crypto assets, citing money laundering and terrorism financing risks. Subsequently, the Nigeria’s Securities and Exchange Commission (SEC) in May last year published regulations for digital assets that signalled the country was trying to find a middle ground between an outright ban on crypto assets and their unregulated use.
CBN Director, Financial Policy Regulation, Haruna Mustapha, announced regulation of the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets. The latest rules spell out how banks and financial institutions (FI) should open accounts, provide designated settlement accounts and settlement services and act as channels for forex inflows and trade for firms transacting in crypto assets.
Mustapha, however, warned that banks and other financial institutions were still prohibited from holding, trading or transacting in cryptocurrencies on their own account. The next was CBN’s lifting of forex restrictions on 43 items from accessing dollars from official window and promise to intervene in the forex market from “time to time.” Items affected include rice, cement, palm kernel, meat and processed meat products, poultry, soap, and cosmetics among others.
It said: “As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.”
Views from stakeholders
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the administration has undertaken some very important corrective reforms which should be applauded. These were the commitment to exchange rate convergence and the removal of fuel subsidy. These were inevitable reforms necessary to fix damaging distortions in the economy. He said: “We have seen intense inflationary pressures, spiking operating costs for businesses and severe negative impact on citizens welfare. The severity of the impact was beyond expectations. This therefore underscored the imperative of an expeditious response from the administration to address the social outcomes of the reforms.”
Yusuf said the commitment to fiscal and tax reforms are also laudable. Former Registrar, Chartered Institute of Bankers of Nigeria (CIBN), Dr. Uju Ogubunka, said the government should listen more to the people. He said the President’s courageous decisions on subsidy removal, exchange rate reforms are commendable, but there is need to consider their impact on the populace. He said the government should take a review of the policy impact, and see if they meet expectations, otherwise they should be re-engineered. He called for greater reassurance on forex and other policy reforms for Nigeria to attract foreign investor participation.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, said opening up the diaspora remittances collection points to more players will deepen dollar inflows to the economy. “I advise the president to ensure that Nigeria’s forex sources are diversified through the grant of an autonomy to the BDCs to be readmitted into the frame and legislation of the apex bank foreign exchange policies as agents of Diaspora remittances and cash imports through the banks,” he said.
Former Central Bank of Nigeria (CBN) Governor, Muhammadu Sanusi II said, said rate at which the naira exchanges against dollar is not as important as the stability of the naira at official and parallel markets. He advised the apex bank to pay more attention to achieving exchange rate stability for the growth and development of the businesses and economy. Sanusi, who was the 14th Emir of Kano, spoke on the theme: Impact of Forex Policies in the Nigerian Economy” in a conference organized by Financial Markets Dealers Association in Lagos.
He said the primary task of CBN is to provide exchange rate stability, not growth but should create environment that supports growth. He said: “There is nothing we are facing today, that was not foreseen. Exchange rate should be predictable. The rate at which the naira exchanges to dollar is irrelevant, what is key is the stability of the exchange rate.”
Sanusi said although the CBN does not generate dollar, it should create an environment that attracts dollar investment into the economy. Conclusively, Lemo advised that good as forex liberalisation may seem, care should be taken to prevent foreign exchange crisis because of forex liquidity scarcity. CBN should also watch the activities of forex speculators.
“Nigerian naira is not internationally convertible. CBN should therefore use “Managed-float” for its forex management,” he advised. The managed-float system allows the CBN to occasionally intervene in the forex market at a period of intense volatility, even though the market operations are left to market forces. That option will save the naira from the current rapid depreciation witnessed in both official and parallel markets.
To increase the value of naira, financial experts have called for increase in the production of crude oil in the country.
Speaking to our correspondents, the founder of Cowry Asset Management Limited, Johnson Chukwu, said though, Dangote Refinery will reduce pressure on the foreign exchange but would only be felt if there’s an increase in crude production.
According to him, if the refineries – Dangote, Port Harcourt – come on stream, they will reduce our export of crude and unless we have increase in crude production any allocation to local refineries will reduce the amount we made from crude sales.
Chukwu said: “In the first place, bear in mind that the country’s foreign exchange earnings are from crude and importation of fuel account for 30 percent of our total import, so if the refineries come on stream, it will reduce our export of crude and unless we have increase in crude production any allocation to local refinery will reduce the amount we made from crude sales.
“So, we have to increase crude production because whatever is going to local refineries will be from the increment and not from the existing 1.3 or 1.4 barrel we produce daily because if we don’t do that it simply means what we save from fuel import would be lost to export earnings from crude.”
“However, whatever crude allocated to Dangote and Port Harcourt should be from incremental crude production so that we can maintain our current export earnings and reduce the 30 percent spent on import.”
Another analyst, Kingsley Chinda, said the 650,000 barrel per day Dangote refinery is expected to meet 100 percent of Nigeria’s demand for refined petroleum products and generate foreign exchange earnings for Nigeria by exporting 40% of its products.
According to Chinda, producing enough petrol, diesel, jet fuel, and kerosene for domestic consumption, the refinery will reduce the need for Nigeria to import products from abroad. This will lower the demand for dollars and ease the pressure on the naira exchange rate.
He said: “Nigeria’s significant expenditure on fuel imports puts pressure on the demand for foreign currency, particularly the dollar. By reducing or eliminating the need for fuel imports through the Dangote Refinery’s production, it would reduce the demand for dollars in the importation of fuel. This decreased demand for foreign currency can help strengthen the naira against the dollar.”
“The establishment of the Dangote Refinery will not only contributes to reducing imported inflation and associated costs but also has the potential to attract foreign investments, further bolstering exchange rate stability.”
“The presence of a significant refinery indicates Nigeria’s commitment to developing its domestic refining capacity, which can instill confidence in international investors. The refinery’s scale and strategic importance in the oil and gas sector can make Nigeria an attractive investment destination.
“The increased foreign direct investment brings in foreign currency inflows, which can strengthen the country’s foreign exchange reserves and positively impact the exchange rate. Foreign investments not only provide financial stability but also bring expertise, technology, and best practices, further enhancing the refinery’s operations and the overall economy.”
“This combination of reduced imported inflation and the attraction of foreign investments positions the Dangote Refinery as a catalyst for exchange rate stability and economic growth in Nigeria.”
The Federal Government yesterday outlined a three-pronged strategy to boost its foreign exchange (forex) position with a view to reducing the pressure on naira and stabilize the economy.
He spoke of plans to mobilise Nigeria’s strengths in oil revenues, substantial forex savings, liquidity in the banking system and international loans.
According to him, there is enough liquidity in the Nigerian banking system to clear the forex backlog, estimated at $5 billion, with appropriate mechanism put in place.
He said: “The priority is to stabilise the naira – that means getting in the additional liquidity – number one from oil revenue. We’re also looking at ways to tap Nigerian savings, in particular domestic dollar savings – both inside and outside the formal market. There’s a lot of cash in the Nigerian economy.”
The naira yesterday fell to a record low of N1,320/$ at the parallel market. The naira decline was attributed to strong demand on the parallel market, also known as the black market.
This represents 3.03 per cent (or N40.00) weaker than N1,280 recorded at the close of trading on Tuesday. The depreciation marked the lowest the naira has come to since October 26, last year, when it reached N1,300 against the dollar at the parallel market.
At the Investors and Exporters Window, the local currency traded at N931/$, creating N389 to dollar premium between the official and parallel markets.
The minister said the current forex backlog could easily be cleared if steps to lift oil revenue and mobilise dollars already in the economy succeed.
He said: “There is actually liquidity within the banking system and there should be a way of getting the banks to actually help with that backlog, either on a spot or a forward-rate basis.
“We believe that if we coral the dollars that are available, we can pay down that backlog almost in one fell swoop.”
The government expects oil production to ramp up to 1.78 million barrels per day, from about 1.49 million barrels last month.
The anticipated rise in production will stimulate the economy and bolster its coffers.
Domestic refining of crude is expected to resume soon at the state-owned Port Harcourt Refinery and from the private-run Dangote Refinery in Lagos. They will reduce gasoline imports and ease currency squeeze.
Edun said the government was also working to attract international loans from the World Bank and through issuance of Eurobond.
He said the government was optimistic of securing a $1.5 billion budgetary support loan from the World Bank, although the loan request is currently at the discussion level.
He said: “We’re hoping to get $1 billion or $1.5 billion from the World Bank” for budgetary support, Finance Minister Wale Edun said yesterday in a Bloomberg Television chat.
He added: “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.
”What we’ve done with fuel subsidies, what we have done in terms of the foreign-exchange market reform, deserve support. We’ve done enough and we deserve to be rewarded imminently.”
Besides, Nigeria has the confidence of having access to the Eurobond market and may look to tap it later this year, if rates move sufficiently lower.
“The major issuers and the book runners have told us that there should be a window for Nigeria in the Eurobond market,” Edun said.
President Bola Ahmed Tinubu has carried out very tough reforms, including the scrapping of costly fuel subsidies and relaxed its exchange-rate policy.
The reforms, which got the acceptance of international investors, triggered a surge in the cost of living, with inflation hitting a 27-year-high of 28.9 per cent last month.
The naira also slumped by about 50 per cent in value against the dollar.
Despite the challenges faced by the naira in the last one year, analysts predict naira rebound, slow inflation and reduced growth in 2024 as the impact of major reforms by the fiscal and monetary authorities reflect on the local currency. Like naira, inflation rate is projected to drop in the year but the economy will witness subdued growth as impact of currency redesign and naira scarcity takes toll on businesses, writes Assistant Business Editor, COLLINS NWEZE.
It is no longer news that the naira suffered heavy losses last year. The currency depreciated by over 40 per cent at both official and parallel markets.
The naira hit the wall after the Central Bank of Nigeria (CBN) unified all exchange rates into the Investors and Exporters (I&E) window.
The apex bank directed that applications for medicals, school fees, Business Travel Allowance/Personal Travel Allowance, and Small and Medium Scale Enterprises (SMEs) would continue to be processed through the I&E window.
The operational changes to the foreign exchange market also include the re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window, which allowed forex dealers to sell dollars at rate of choice provided they can get buyers.
It reduced CBN’s regular interventions in the market now controlled by market forces.
Analysts said inflation is likely to flatten out in the next quarter and begin to decline afterwards as CBN sustains interest rate hike and the adoption of measures to firm up the naira. The economy will, however, witness dampened growth due to impact of currency redesign and perennial naira scarcity, the World Bank projected.
The CBN leadership, private sector experts and industry stakeholders gave insights on how inflation will play out this year, and factors shaping the current figures.
In an emailed note to investors, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said inflation would continue to rise in December, but could flatten out this month and then begin to decelerate afterwards.
“Rewane said: “We expect inflation to rise further in December supported by festive demand. However, it could flatten out in January 2024 and begin to decline afterwards as the CBN maintains its hawkish monetary stance.The Monetary Policy Committee is expected to hike interest rates at its first meeting in 2024 in line with the CBN’s goal of achieving price stability”.
However, the CBN is poised to take a potentially divergent path at its next meeting holding this month, primarily driven by its renewed commitment to ensuring price stability.
Sustained interest rate hikes will not only taper inflationary pressures but also reduce capital flights, which could lead to an appreciation in the value of the naira.
CBN Governor, Olayemi Cardoso, said the apex bank will adopt inflation-targeting framework, meant to ensure that fiscal and monetary policies are harmonised to achieve price and exchange rate stability.
But the Managing Director, Nairametrics, Ugochukwu Obi-Chukwu, said a weaker naira would emerge, before it finally rebounds in the year.
On prospects for the naira, Obi-Chukwu said: “I don’t mind losing this argument, but we will likely see weaker naira down the line before it starts to stabilise because the indicators don’t look good yet. It is good that we are clearing backlogs, that will serve as confidence booster. But what will attract the sort of forex we need as a country, will take a while.
“As an import-driven economy, people source dollars to import their goods. They, then, sell in naira, and mop up another round of dollars for imports. As you are taking out the dollars, what is coming in as exports earning is small. A lot of the things you see happening, is a cycle.”
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the administration has undertaken some very important corrective reforms which should be applauded. These were the commitment to exchange rate convergence and the removal of fuel subsidy.These were inevitable reforms necessary to fix damaging distortions in the economy.
He said: “Admittedly, these reforms had inflicted considerable pains on the citizens.We have seen intense inflationary pressures, spiking operating costs for businesses and severe negative impact on citizens welfare.The severity of the impact was beyond expectations. This, therefore, underscored the imperative of an expeditious response from the administration to address the social outcomes of the reforms. The government ought to have acted much faster.”
Yusuf said the commitment to fiscal and tax reforms is also laudable. He said: “But there seems to be a disproportionate focus on revenue generation.This could hurt investment and impede economic growth.While it is imperative to ensure fiscal consolidation, it is important to deploy fiscal, tariff and tax policies to provide reliefs to citizens and businesses.”
Continuing, he said: “We need to see more fiscal and tax incentives to drive recovery of growth sectors of the economy and mitigate the pains of the current reforms.The government now has the fiscal space to support the businesses and the vulnerable segments of the society with these policy driven incentives.”
The suspension of bulk cash deposit-related fees by the apex bank until April 30, 2024 is also seen as one factor that will support businesses in the new year.
Recapitalisation of banks
Speaking on the role of Central Bank in Macroeconomic Stability & Financial System Supervision, former CBN Deputy Governor, Operations, Tunde Lemo, said the financial system is sound, but requires close monitoring.
“We should support the planned recapitalisation of banks by the Central Bank of Nigeria, but one cap fits all is not correct. Banks should be recapitalised based on the risks they want to take,” he advised.
Lemo said the the recent foreign exchange reform, which paved the way for a fully liberalised FX market, is laudable, but more efforts should be geared toward improving FX availability to reduce the rate of currency depreciation and inflation pass-through.
“Good as forex liberalisation may seem, care should be taken to prevent foreign exchange crisis because of forex liquidity scarcity. CBN should also watch the activities of forex speculators. Nigerian naira is not internationally convertible. CBN should, therefore, use “Managed-float” for it’s forex management,” Lemo
Naira recovery against all odds
The naira will against all odds, exchange averagely at N919 to dollar at the official market this year and equities expected to return 14.8 per cent, analysts at Afrinvest West Africa have predicted.
In a report entitled: “Pulling Back from the Precipice”, the investment and research firm analysts said the economic outcomes for the key indicators would also depend on the government’s ability to carry through with the reforms, improve business environment to end recent spate of closure by mid and large-sized business entities and national security.
The ability to enhance internal shock absorbers to external risks, and narrow structural gaps will also play a role on how far the economy will go in this year.
The report further stated that based on its scenario models, “Gross Domestic Product (GDP) growth, inflation, and FX rate would average three per cent, 22.1 per cent, and N918.89 to dollar in 2024 blue-sky case, while the average outcomes could deteriorate to -1.5 per cent, 24.7 per cent, and N1,057.19 to dollar should policy fatigue set in and external risks mount”.
The analysts explained that shifting focus, the Nigeria equities market raced to a 15-year high last year fuelled by market-friendly reforms implementation by this administration and resilient corporate performance.
“We expect the equities market to sustain the positive momentum through 2024, though at a modest pace. Our model forecasts a 14.8 per cent return for the year (base case), premised on improved macroeconomic conditions anticipated growth in Foreign Portfolio Investments, and a more stable FX environment,” they said.
The analysts said the fixed-income market charted a bearish path in 2023 owing to tightened financial system liquidity by the CBN and footprints of the Federal Government.
“Across market segments, yields repriced in favour of the bears to close around eight per cent and 14 per cent levels for benchmark Nigeria Treasury Bills and Federal Government of Nigeria Bond instruments. The outlook for 2024 is cautiously optimistic, predicated on robust liquidity dynamics and positive inflation – and interest rate- expectations,” they said.
Continuing, the analysts said: “We anticipate that the CBN might adopt restrictive stance to counter large inflows in the first half of the year. This could be the major upside trigger for yields. However, we see pathways for tapering of yields into the second half with dovish pivots by systemic central banks, moderating inflation and less restrictive CBN stance as potential factors to weigh on the yield environment,” they said.
Overall, the analysts said the global economic outlook remains challenging, with projections by the International Monetary Fund (IMF) indicating a weaker global output growth of 2.9 per cent in 2024. The stems from worsening and escalating debt levels. tensions.
“Elsewhere, global central banks have effectively managed inflation close to levels seen before the pandemic through multiple interest rate hikes. This, in turn, should create legroom for central banks to reconsider their hawkish stance and start cutting rates in early 2024,” they said.
On the domestic landscape, they said 2023 was a year of two halves when considered from the prism of fiscal and monetary policy actions.
“In first half, fiscal imprudence of the past administration, the botched implementation of the Naira redesign policy, persistent insecurity and policy misalignments as well as pre-election jitters deteriorated critical macroeconomic variables debt profile, inflation rate, poverty headcount rate, and capital importation to N87.4 trillion, 22.8 per cent, 63 per cent, and $2.2 billion, respectively from N11.5 trillion, 9.2 per cent, 40.1 per cent, and $5.5 billion in mid- 2015,” they said.
The analysts said with its immediate rollout of some market-friendly reforms – partial removal of petrol subsidy, rejig of the CBN’s management realignment of FX rates, and of the multiple taxations- Nigerians are yet to feel any sign of relief. This, then, begs the question of whether the strategies of the new administration are capable of “Pulling Nigeria Back from the Precipice”.
Nigeria’s GDP growth prospects
The World Bank Group explained why three leading economies in Africa – Nigeria, South Africa and Angola will face slow growth in the year.
In a report yesterday, the bank said there were expectations that while growth in Nigeria, South Africa and Angola – would drag on the rest of the region, economies that are not rich in resources will grow above the expected regional average of 3.8 per cent.
Indeed, sub-Saharan Africa is expected to grow at five per cent this year when Nigeria, South Africa and Angola are excluded from the analysis.
These three would experience modest improvements on the meager growth recorded last year. They posted a combined 1.8 per cent growth in 2023, a decline from the previous year which the World Bank attributes to disruptive monetary policy moves like Nigeria’s currency redesign, revenue shortfalls from low oil production as in Angola, and infrastructure problems notable in South Africa’s energy and transportation sectors.
Growth in sub-Saharan Africa slowed to 2.9 per cent in 2023 from 3.7 per cent and 4.4 per cent in the two years before. The continent’s three largest economies greatly influenced the decline, but performance in other countries slowed to 3.9 per cent due to conflict, weak external demand, and various domestic policy measures to tame rising inflation, the World Bank said.
The naira will, against all odds, exchange averagely at N919 to the dollar at the official market this year and equities expected to return 14.8 per cent, analysts at Afrinvest West Africa have predicted.
In a report entitled: “Pulling Back from the Precipice”, the investment and research firm analysts, said the economic outcomes for the key indicators will also depend on government’s ability to carry through with the reforms, improve business environment to end recent spate of closure by mid and large-sized business entities and national security.
The ability to enhance internal shock absorbers to external risks, and narrow structural gaps will also play a role on how far the economy will go in this year.
The report further indicated based on its scenario models, “Gross Domestic Product (GDP) growth, inflation, and FX rate would average three per cent, 22.1 per cent, and N918.89 to dollar in 2024 blue-sky case, while the average outcomes could deteriorate to -1.5 per cent, 24.7 per cent, and N1,057.19 to dollar should policy fatigue set in and external risks mount”.
The analysts explained that shifting focus, the Nigeria equities market raced to a 15-year high last year fuelled by market-friendly reforms implementation by the administration and resilient corporate performance.
“We expect the equities market to sustain the positive momentum through 2024, though at a modest pace. Our model forecasts a 14.8 per cent return for the year (base case), premised on improved macroeconomic conditions anticipated growth in Foreign Portfolio Investments, and a more stable FX environment,” they said.
The analysts said last year, the fixed-income market charted a bearish path owing to tightened financial system liquidity by the Central Bank of Nigeria (CBN) and footprints of the Federal Government.
“Across market segments, yields repriced in favour of the bears to close around eight per cent and 14 per cent levels for benchmark Nigeria Treasury Bills and Federal Government of Nigeria Bond instruments. The outlook for 2024 is cautiously optimistic, predicated on robust liquidity dynamics and positive inflation – and interest rate- expectations,” they said.
Continuing, the analysts said “ We anticipate that the CBN might adopt restrictive stance to counter large inflows in the first half of the year. This could be the major upside trigger for yields. However, we see pathways for tapering of yields into the second half with dovish pivots by systemic central banks, moderating inflation and less restrictive CBN stance as potential factors to weigh on the yield environment,” they said.
Overall, the analysts said the global economic outlook remains challenging, with projections by the International Monetary Fund indicating a weaker global output growth of 2.9 per cent in 2024. The stems from worsening and escalating debt levels. tensions
“Elsewhere, global central banks have effectively managed inflation close to levels seen before the pandemic through multiple interest rate hikes. This, in turn, should create legroom for central banks to reconsider their hawkish stance and start cutting rates in early 2024,” they said.
On the domestic landscape, they said 2023 was a year of two halves when considered from the prism of fiscal and monetary policy actions.
“In first half, fiscal imprudence of the past administration, the botched implementation of the Naira redesign policy, persistent insecurity and policy misalignments as well as pre-election jitters deteriorated critical macroeconomic variables debt profile, inflation rate, poverty headcount rate, and capital importation to N87.4 trillion, 22.8 per cent, 63 per cent, and $2.2 billion, respectively from N11.5 trillion, 9.2 per cent, 40.1 per cent, and $5.5 billion in mid- 2015,” they said.
The analysts disclosed that with its immediate rollout of some market-friendly reforms – partial removal of petrol subsidy, rejig of the CBN’s management realignment of FX rates, and of the multiple taxations- Nigerians are yet to feel any sign of relief. This then begs the question of whether the strategies of the new administration are capable of “Pulling Nigeria Back from the Precipice”.
No recipe feat for the naira after it lost 55 per cent of its value in the official market during the last 12 months, report by Bloomberg has shown.
The online media platform predicts that the naira will record worst performance in 25 years this year.
Also, the Nigeria’s foreign exchange reserves dropped to $33.23 billion at the end of the third quarter (Q3) of 2023, according to the Central Bank of Nigeria (CBN).
The foreign reserves declined by $5.01 billion yearly relative to the $38.25 billion reported at the end of September 2022.
Quarterly, the foreign reserves depreciated by $881.84 million, having closed the second quarter (Q2) at $34.11 billion.
According to CBN data, the reserves further declined to $32.8 billion last December 27, indicating significant fall with huge negative impact expected on the naira.The impact will also worsen Nigeria’s capacity to fund imports, as increased forex demands worsens naiba’s woes.
According to the publication, the naira is poised for its worst year since the return to democracy in 1999, adding that analysts are predicting further depreciation in 2024.
The report said the naira fell 55 per cent this year to N1,043 per dollar at the official market last Thursday.
The decline, Bloomberg said, made the naira the third worst-performing currency in the world behind the Lebanese pound and the Argentine peso — among 151 currencies tracked by the media firm.
It reported foreign reserves in Nigeria are at the lowest in six years with most of them burdened by overdue short-term overseas obligations.
In the non-deliverable forwards market, according to the report, the naira’s 12-month contract is trading near a record low of N1,294.44/$.
The worst came for the local currency after the CBN unified exchange rates into the Investors and Exporters (I&E) window.
The apex bank directed that applications for medicals, school fees, Business Travel Allowance/Personal Travel Allowance, and SMEs would continue to be processed through the I&E window.
It said the operational changes to the foreign exchange market also include the re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window.
“Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window,” it said.
The removal of petrol subsidy worsened inflation, which is at 28.2 per cent last November, while the benchmark interest rate is at 18.75 per cent.
“The negative real interest rate has dissuaded overseas investors,” the report said.
Vetiva Capital Management Limited told The Nation that the naira might depreciate further unless the government attracted international investments or ramped up oil output.
Analysts said inflation is likely to flatten out in the next quarter and begin to decline afterwards as CBN sustains interest rate hike and the adoption of measures to firm up the naira.
Also, Managing Director, Nairametrics, Ugochukwu Obi-Chukwu, said weaker naira will emerge, before it finally rebounds in the course of the year.
On prospects for the naira, Obi-Chukwu said: “I don’t mind losing this argument, but we will likely see weaker naira down the line before it starts to stabilise because the indicators don’t look good yet. It is good that we are clearing backlogs, that will serve as confidence booster. But what will attract the sort of forex we need as a country, will take a while.”
He added: “As an import-driven economy, people source dollars to import their goods. They then sale in naira, and mop up another round of dollars for imports. As you are taking out the dollars, what is coming in as exports earning is small. A lot of the things you see happening, is a cycle”.
While the other peculiarities of failed transactions and poor network services by banks do not feature this time around as compared with the Emefiele era, the Naira scarcity still bites despite the recent assurance of the CBN that there is still N3.4 trillion in circulation nationwide.
Now coming at a time when the marginal propensity to spend is more likely to be on the increase, owing to the festive periods such as the Yuletide and the new year, such artificial scarcity of the Naira will incur more hardship on ordinary Nigerians as it will affect the prices of goods and services, leaving Nigerians to pay more.
So how come with a rise in circulation of money by N2.4 trillion, Nigerians are still in the search for Naira notes? The CBN’ s story of 3.4 trillion being in circulation seems not to be adding up. Rather the situation seems to resemble the times when the apex bank removed N2.3 trillion cash from circulation, an act that crippled the economy resulting in the loss of almost 20 trillion Naira.
Another scapegoat for the Naira scarcity has been labeled as panic withdrawals by Nigerians who are apprehensive of God knows what reasons. These Nigerians according to the CBN are alleged to have withdrawn huge amounts of cash and kept them in their abodes, expecting some sort of chaos as witnessed early in the year.
How plausible is this? How can these alleged hoarders hoard at most 50 to 69 percent of the such stated cash in circulation? Let us assume that this is allegedly true, to what ends then? What institutional capacity do these hoarders have to keep such monies out of circulation? Again, even if these hoarders are seeking to avoid a repeat of what transpired in February 2023, should such hoarding not be only the newly redesigned notes? How come the scarcity is felt both ways with the new and old notes becoming scarce legal tender? It definitely isn’t adding up!
Isn’t it indeed funny that in a spate of 16 days, the Federal Government and the CBN have repeatedly contradicted each other? While I had earlier pointed out the comments of the honourable minister for information alongside the reactions of the apex bank, the sum total of both contradictory statements suggests that there is something sinister about the whole situation, call me a conspiracy theorist, call me an alarmist but there is more to this situation than it appears.
Is there a problem with the stability of the nation’s banking sector? Are our funds within the Nigerian banking system secure? Now while a scarcity of the legal tender isn’t really a clear indication of such a situation, it could be misinterpreted by the populace as such, thus leading to panic withdrawals.
The scarcity of such notes bears with it some form of economic consequences, I am only hopeful that those at the helm of affairs understand the weight of such. Asides the disruptions that will arise with such there is also the issue of a depreciation in investor confidence.
The average Nigerian who is apparently not smiling owing to the prevailing economic situation in the country cannot now welcome such. It is an added punishment to the suffering Nigerian who has not only grappled with rising costs in energy but also in the price of staples.
In a country where Cash transactions still top in number the type of transactions available to our people, it is therefore imperative that we resolve such an imbroglio while planning ahead to deepen the level of fiscal inclusivity amongst other choices. They should however ensure a steady flow of the Naira notes.
