Nigeria is poised to receive an anticipated $10 billion of inflows in the coming weeks, providing much-needed relief to a liquidity squeeze that has been adversely affecting the naira.
Finance Minister Wale Edun affirmed at the Nigerian Economic Summit in Abuja that the government has a clear perspective on the imminent influx of funds. He emphasized that this injection of liquidity is anticipated to occur in the near term [weeks], rather than being drawn out over a longer period.
This substantial inflow is expected to play a significant role in bolstering Nigeria’s economic stability and alleviating the pressures on the national currency.
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The measures will add to other steps being taken by the government to boost foreign-exchange liquidity, including improving market transparency and allowing domestic entities to issue foreign-exchange instruments, he said.
The naira has abysmally fallen to N1,200 per dollar in the parallel market, compounding the country’s economic crisis as it fuels inflation. The latest Consumer Price Index (CPI) report by the Nigerian Bureau of Statistics (NBS) noted that inflation has risen to 26.72% as of September.
Against this backdrop, the government is desperately looking for ways to take pressure off the naira. Last month, Nigeria’s Finance Minister, Adebayo Olawale Edun, attributed the naira’s abysmal decline to the approximately $6.8 billion in overdue forward payments in the foreign exchange market, emphasizing that addressing this issue is crucial for the stabilization of the local currency.
The solution to this problem is largely tied to increased FX inflow to Nigeria. “The issue we have now is that the market is not liquid enough. We are committed to encouraging liquidity based on reforms that have been made at the moment, on the fiscal side and the monetary side. And together with the restoration of trust and confidence, we think the FX flows will return,” Edun said last month.
Other efforts by the government to boost FX inflow, such as the $3bn emergency loan the Nigerian National Petroleum Company Limited (NNPCL) secured from Afreximbank, are yet to yield the needed results.
However, some analysts have lauded the government’s move to boost FX liquidity with the $10 billion inflow. Financial analyst, Kelvin Emmanuel said resource-backed loans from Goldman Sachs can be classified as securities lending.
“Goldman Sachs is an external asset manager to the CBN, so using NNPC’s account that CBN manages with Goldman as an unsecured credit line to tap $10bn for the purposes of clearing outstanding forwards and stabilizing the exchange rate back to the 800 range is plausible,” he said.
“This means that Goldman Sachs will net off gas revenues from WAGPCO and NLNG over an extended period to repay back.”
This approach, which involves an upfront cash loan against proceeds from a limited amount of future crude oil production, was used by the NNPCL to secure the $3 billion emergency loan from Afreximbank.
Although there are concerns that it will impact Nigeria’s future revenue from crude oil sales, the strategy appears to be the only viable option for now.