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FXTM Analysis: IMF’s Warning Weighs Heavily on Sentiment in Nigeria

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The improving sentiment towards the Nigerian economy was dealt a heavy blow in March following reports of the International Monetary Fund’s (IMF) warning of a potential economic collapse if the nation failed to move ahead with reforms.

Although at the start of the year the economic outlook was elevated on repeated occasion with even the World Bank predicting an encouraging growth for 2017, the pending report from the IMF which may be seen as a warning could create some headwinds as the nation attempt to secure international loans worth $1.4 billion. While global markets have acknowledged that the largest economy in Africa is in the process of a key fundamental transformation that may exceed all expectations, there still remains a threat of internal and external risks creating obstacles.

 Some optimism still exits over the economic growth recovery plan for 2017-2020 which displayed an encouraging outlook for the nation.

The four-year plan was built around achieving a healthy economic growth and sustainable development while the nation embarked on its quest to breaking away from oil reliance. With there being a very strong focus on the nation enhancing both public and private sector efficiency while also boosting overall productivity, the growth forecast of 7% by 2020 could become a reality if the protocol is followed.

Nigeria must do all it can to achieve a stable macroeconomic environment such as invest heavily in agriculture and bolster infrastructure investments to generate sustainable economic growth in the longer term.

Focusing on Nigeria’s macro fundamentals, economic data this quarter has been mixed with inflation cooling down for the first time in 15 months in February. While inflation has started to somewhat stabilize, the high unemployment remains a cause for concern which may become another stumbling block to stable economic growth.

The mixed economic data and lingering uncertainty still enshrouding Nigeria have encouraged the Central Bank of Nigeria to maintain a passive stance in its recent policy meeting. Although the sentiment towards the nation continues to display some early signs of improvement, long-term fears over decelerating economic growth still weigh heavily on sentiment.

While the Central Bank of Nigeria has intervened to somewhat quell the foreign exchange scarcity dilemma, the multiple exchanges is a damaging policy that even the IMF has urged the government to rectify.

Speaking of foreign exchange policies, the Naira currently trades around 390 on the parallel exchange after the Central Bank of Nigeria injected a mammoth $1.138 billion in the forex markets to meet bids for forwards.

While the repeated injections of Dollars in the foreign exchange may buoy the Naira, questions should be raised over the sustainability of this method. With the multiple exchanges still a major cause for concern that needs to be seriously dealt with, expectations remain heightened over the CBN taking further steps to fully bridge the gap in a sustainable way, ultimately creating one equilibrium currency exchange.

Although the Naira may be poised to appreciate further in the short term as the CBN continues to pump Dollars into the markets, the possibility of a currency devaluation in the future could expose the Naira to downside shocks.

Outside of Nigeria, the cautious attitude the Federal Reserve has adopted coupled with the renewed Trump jitters has exposed the Greenback to major downside risks. A vulnerable Dollar may pose some benefits to emerging markets with Nigeria on the list.

With the growing concerns over Trump’s economic policies punishing the Dollar, emerging market currencies may receive a boost as concerns ease of capital outflows.

With Trump already facing headwinds in the early stages of his presidency in enacting his policies, the threat of the protectionism becoming a reality may subside consequently reducing some pressures on emerging markets.

Looking at oil, prices were exposed to downside risks this quarter with WTI Crude tumbling towards $47 after optimism diminished over the effectiveness of OPEC’s supply cut agreement. The consistent buildup seen in U.S Crude stockpiles swiftly revived the oversupply fears while concerns over some OPEC members not fully respecting compliance cuts weighed heavily on sentiment.

Oil prices could be instore for further punishment moving forward with the bullish effect of last year’s unexpected production cut wearing off amid the global glut anxieties. A drop in oil prices may enforce further downside pressures on Nigeria which currently remains reliant on oil exports for a chunk of its government’s revenue.

As we enter the second quarter of the trading year, investors will be paying very close attention to economic data and if the nation is able to secure the $1.4 billion worth of international loans. The blueprints to a recovery are already in place and now actions must be taken to propel the nation away from recessionary levels.

With the IMF warning Nigeria that its economy needs urgent reforms with the government changing its exchange policy, the CBN may be prompted to intervene in an effort to create some stability while improving the chances of securing the critical loan needed.

On the foreign exchange side, although the combination of repeated interventions from the CBN and Dollar weakness may elevate the Naira, the long-term trajectory still tilts to the downside, especially when factoring a potential devaluation.

 


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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