- Says It Will Take Foreign Borrowing To Rebuild Apex Bank’s Buffers, Fully Clear Backlog Of Unmet FX Orders, Restore Confidence
International business research firm, the Economist Intelligence Unit, EIU has raised an alarm that the Central Bank of Nigeria (CBN) does not have the liquidity to support the naira as of now.
As such, EIU canvassed that the apex bank should resort to foreign borrowing to support the naira and fulfil its foreign exchange obligations.
It stated this in its latest Country Report on Nigeria, which was published recently.
“Our view is that it will take foreign borrowing to rebuild the CBN’s buffers, fully clear a backlog of unmet foreign exchange orders and restore confidence. This is probably only achievable towards the end of 2024. In mid-January Nigeria took out a $3.3bn loan from the African Export-Import Bank, secured on oil revenue in a so-called crude oil prepayment facility. This follows a $1bn loan from the African Development Bank in November, and another $1.5bn is being sought from the World Bank.
“Falling risk premiums on government international bonds make tapping the international capital market another viable (albeit costly) option once US interest rates start to fall from the second half of 2024.
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“For most of this year, the naira will be highly volatile, leading to regulatory erraticism that can affect businesses, especially those holding foreign currency.
“The CBN lacks the liquidity to support the naira itself; out of $33bn in foreign reserves, a large share (estimated at nearly $20bn), is committed to various derivative deals. The CBN recently imposed restrictions on oil companies repatriating export earnings abroad, and there is a risk of wider convertibility limits being imposed until the currency stabilises.”
Also, it was revealed that the Federal Government was greatly incentivised to borrow from the CBN following the return of fuel subsidy.
In the report, whose briefing sheet was edited by Benedict Craven, EIU said that with the return of fuel subsidy, which was larger than the previous one, the FG had a strong reason to want to borrow from the apex bank.
