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Business News of Tuesday, 4 January 2022


Report projects improvement in Nigeria’s forex condition

Dollars Dollars

The monetary authority is in a good position to ease foreign exchange (FX) pressure as its coffers have been enhanced by a sizable $7.3 billion liquidity – $4 billion Eurobond issuance and $3.3billion special drawing right (SDR) from the International Monetary Fund (IMF).

These were among the projections of EFG Hermes, in its report titled, ‘The Year Ahead 2022 – Recovery intact, but expect volatility.

The report mentioned that a number of local banks have been active in the international debt market, raising billions of dollar, which will help improve FX liquidity.

The report stated: “We are less optimistic that this position can lead to a sustainable improvement in FX conditions. First, the country has failed to benefit from the high oil price environment, marking another disappointing development in Nigeria’s economy.”

It stated that a sharp 20 to 30 per cent drop in crude oil production and a sisable fuel subsidy bill have eaten up much of the benefit of rising oil prices, leaving the Central Bank of Nigeria (CBN) struggling to build the external foreign reserves.

The research also noted: “In this respect, we only expect a partial resolution to the FX problems as the CBN clears some of its backlogs. The CBN, though, would need to preserve its reserves as economic activity slowly picks up; hence, we expect devaluation to N430-440 against the USD in the coming months.”

The report identified two prospects to the outlook – a faster-than-expected rise in crude oil production, which would finally enable the country to build its reserves. The second, it stated, is the on-lending of SDR allocations by advanced economies.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed that the government is planning to liberalise fuel prices this year and has only budgeted for six months of subsidies in the appropriation.

The report also touched on consumer goods as it expects food and beer producers to continue to grapple with cost pressure, given forex shortages and an inflationary environment – which will impair Nigeria’s consumer companies’ ability to post improved earnings.