Nigeria, beset by acute foreign exchange (FX) shortages causing ripples across economic sectors, received a much-needed financial infusion as the federal government finally saw the initial $2.25 billion tranche of a substantial $3.3 billion FX facility from the African Export–Import Bank (Afreximbank) materialize.
This timely inflow marks a significant step towards resolving the nation’s FX crisis, offering a glimmer of hope in addressing economic challenges.
The dire need for this financial boost has been evident in Nigeria’s economic growth, where FX shortages have stifled economic activities and eroded investor confidence.
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Last August, the Nigerian National Petroleum Company Limited (NNPCL) secured an emergency $3 billion crude oil repayment loan from the Trade Finance Bank for Africa, Afreximbank. The loan is aimed to provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.
President Bola Tinubu had earlier affirmed his administration’s commitment to addressing the FX backlog by injecting crucial funds into the market. His sentiments were echoed at the 2023 Bank Directors’ Summit in Abuja, emphasizing the urgency of liquidity in the FX market for economic stability. Despite concerns among investors regarding the government’s commitment, Finance Minister Wale Edun, representing Tinubu, assured that while such interventions take time, the administration remained resolute in its objectives.
The reception of the $2.25 billion tranche from Afreximbank comes as a substantial reprieve, buoying hopes of an economic recovery. The remaining $1.05 billion is expected to follow suit in the coming week, further bolstering the nation’s financial liquidity.
This structured financing arrangement, led by Afreximbank with United Bank for Africa (UBA) with $100 million as the Local Arranger, signifies a concerted effort to stabilize Nigeria’s FX liquidity. The involvement of key players such as VITOL, Sahara Energy Group, Oando, and other major oil traders reflects a collaborative approach to tackling the nation’s FX challenges.
Experts have hailed Afreximbank’s intervention, acknowledging its potential to mitigate exchange rate volatility and curb rising inflation. However, amidst this optimism, cautionary voices highlight the need for sustained efforts to address the underlying FX liquidity issues in the long term.
Dr. Chijioke Ekechukwu, Managing Director/Chief Executive of Dignity Finance and Investment Limited, while acknowledging the loan’s role in funding the budget deficit and easing FX concerns, expressed reservations about its temporary nature. He highlighted concerns regarding the quick depletion of injected funds due to speculative activities, emphasizing the necessity for comprehensive measures to ensure sustained FX stability.
“We have a budget deficit, which can only be funded by borrowing or selling government assets or both,” he said.
“The other fundamentals that could increase our revenue base have been stretched ambitiously.
“This gives the government no other option but to continue to borrow.”
Professor Uche Uwaleke, Chairman of the Chartered Institute of Bankers of Nigeria (CIBN) in Abuja, emphasized the severity of the FX liquidity challenge. He noted the significance of any inflow into the Nigerian Autonomous Foreign Exchange Market (NAFEM) to alleviate the current strain.
“So, we expect the exchange rate to drop marginally with such injections, speculations, and other uses will, however, quickly drain the market of the available FX,” he said.
Mr. Idakolo Gbolade, Managing Director/Chief Executive of SD&D Capital Management Limited, highlighted forthcoming initiatives, such as the anticipated commencement of operations at the Dangote and Port Harcourt refineries in January. He anticipates these initiatives, alongside government efforts to attract foreign investors, will contribute significantly to resolving the nation’s FX crisis in the coming months.
However, as Nigeria welcomes the $2.25 billion injection, the focus now shifts towards maintaining and strengthening FX reserves for lasting stability and economic advancement. The country is expected to strike a harmonious equilibrium between immediate alleviation and the crucial need for enduring strategies to bolster its FX standing in the long run.