CBN Governor, Godwin Emefiele
Nigeria’s foreign exchange reserves have begun a “gradual recovery” thanks to the central bank’s management of dollar demand and the government’s effort to plug leakages, Central Bank of Nigeria’s (CBN) Governor Godwin Emefiele said yesterday.
Reserves stood at $31.89 billion on July 7, up from $29.1 billion at the end of June but still below $37.3 billion a year ago, Emefiele told lawmakers when he met with them in the National Assembly.
The gradual recovery of Nigeria’s foreign reserves confirms THISDAY’s exclusive report last month that reserves will begin to rise by July.
The central bank has spent around $5 billion since January defending the naira, which was hit by last year’s plunge in oil prices.
With “the strong efforts of President Muhammadu Buhari … to plug all leakages, as well as the vigilant demand management of the central bank, we have seen our foreign exchange reserves begin a gradual recovery,” he was quoted by Reuters as stating.
Buhari has vowed to recover billions of dollars allegedly stolen by officials and restore financial “sanity” in Africa’s biggest economy.
Emefiele said the central bank’s forex policies have led to a “significant stabilisation” in the exchange rate and an improvement in market sentiments.
However, stocks fell yesterday to a three-month low and the most liquid 5-year bond yield rose close to March levels of 15.5 per cent, as investors fretted over the impact of dollar shortages on the currency market.
The central bank, worried about rising inflation, has said it would not devalue the naira again, after it tightened access to hard currency for the import of a wide range of goods, to save reserves.
Since the new measures, the naira has weakened steadily in the parallel market, hitting a new record low of N233.50 to the dollar yesterday. In the interbank market, it traded near the central bank’s pegged rate of N196.95.
Investors questioned how long the bank’s rate could hold there, when the currency was trading further and further away on the parallel market.
Emefiele told lawmakers that the country’s banking system was in good health and financial market liquidity conditions were stable.
Meanwhile, some state governments are considering bond sales to replace dwindling income from crude oil, the source of about 70 percent of the revenue of Africa’s biggest oil producer.
“I know one or two states have started talking to investment banks in view of coming to the capital market,” Mounir Gwarzo, Director General of the Securities and Exchange Commission (SEC), said in telephone interview with Bloomberg on Tuesday.
“Given their financial situation, the capital market is the best avenue for them, because some of them have lots of loans from commercial banks.”
Some of the 36 states constituting Africa’s largest economy are unable to pay employee wages after their share of the nation’s oil income, which accounts for a bulk of their budgets, declined. Crude oil prices have slumped by more than 50 per cent since June last year.
The federal, state and local governments agreed to share a $1.7 billion dividend paid into the treasury by Nigeria LNG Ltd., the nation’s producer of liquefied natural gas, to pay wages and meet their financial obligations, presidential spokesman Femi Adesina said Tuesday.
More than N660 billion ($3.3 billion) in commercial loans taken by the state governments will be restructured by the Debt Management Office (DMO), Adesina added.
Although no state has yet applied to the SEC to sell bonds this year, some state governors have discussed the possibility with the commission, Gwarzo said, without naming any.
“They’re very excited about it,” Gwarzo said. “If they restructure the commercial loans it will give them breathing space and temporary liquidity to pay salaries and allowances.”
SEC plans to start separate meetings with the states this year, which will be a forum to educate the leadership “about the importance of capital markets”, Gwarzo said. “Once the instruments are good and investors are comfortable, we believe they will invest,” he said referring to state bonds.
The commission requires a debt-to-revenue ratio of 50 per cent or less for states tapping the market, Gwarzo said.
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