- CBN remits $2 billion to foreign institutions yearly as school fees
- Moody’s: Nigeria’s liquidity pressure rising amid growth, inflation challenges
Obinna Chima in Lagos
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele friday expressed the desire of the bank to “employ every indispensable means, conventional or otherwise”, to help restore economic growth in the country.
It also emerged yesterday that the CBN has amended its foreign exchange manual; resident Nigerian nationals and companies that bring in foreign currency through the banks and other authorised dealers can now invest such funds in money market instruments, bonds and equities.
Emefiele spoke while delivering a keynote address to participants of the Senior Executive Course No. 38 at the National Institute of Policy and Strategic Studies (NIPSS), Kuru, Plateau State.
The CBN governor’s speech was titled: “Managing Monetary Policy in Turbulent Times.”
The governor who insisted that the “Nigerian economy must flourish,” urged Nigerians to reduce their appetite for foreign goods.
According to him, with the size and structure of the country’s import bills, it is apparent that “we as a people cannot continue to depend on other countries for things that can easily be produced locally.
“How do we justify the importation of items like eggs from South Africa, beef from Zambia and toothpick from China?” he queried.
He added: “It is in view of these facts that one of our fundamental quests at the CBN is to attain an inclusive growth by bolstering our productive capacity and ensuring that the Nigerian economy is indeed self-sufficient in every sense of the word. This entails well thought out bespoke policies.
” I must confess that though we have been unjustly castigated, from various quarters for our work, we remain certain that the actions we have taken are indeed appropriate to set our economy on the path of development in the medium to long-term.
“When you have policies that people are praising, that means such policies are not really good, because the people praising the policies know that they can circumvent them. But if people criticise your policies, especially in Nigeria, such policies are good; the people criticise them because they know that they cannot circumvent them.
“We should remain resolutely committed to the course and be motivated by the achievability of our desire to strengthen the economic fundamentals.
“When we stop importing toothpicks, stop eating imported rice cultivated with chemical, stop eating chicken imported and preserved with formaldehyde, then our economy will begin to grow.
“20 years ago, we had textile, we had the groundnut pyramids, we had Cocoa and palm oil. We also used revenue from agriculture to build our economy. But after we found oil, we abandoned all that for easy money. Today, we are suffering the consequences. ”
Emefiele noted that the CBN spends close to $2 billion (Two billion dollars) to remit school fees to foreign institutions yearly, querying why such huge money should not be used to develop institutions in the country to a world standard.
He also noted that some of the best doctors in other nations are Nigerians who were trained in Nigeria but had to go overseas to practice because of the poor health systems and policies in the country.
In summation, Emefiele said “we should never lose sight of what is important. We should remain resolutely committed to the course and be motivated by the achievability of our desire to strengthen the economic fundamentals. Fittingly, to end my address I will lean on the sagacity of Abraham Lincoln portrayed in these words: “It often requires more courage to dare to do right than to fear to do wrong.” Hence, “neither let us be slandered from our duty… nor frightened from it by menaces of destruction… Let us have faith that right makes might; and in that faith let us to the end dare to do our duty as we understand it.”
CBN Amends Foreign Exchange Manual
In line with the CBN’s continued effort to encourage portfolio investments in Nigeria, resident Nigerian nationals and companies that bring in foreign currency through the banks and other authorised dealers are henceforth allowed to invest such funds in money market instruments, bonds and equities.
This is coming on the heels of a report yesterday by Moody’s Investors Service that increasing liquidity pressures, rising inflation and stagnant growth are posing key challenges to Nigeria’s economy.
The CBN announced the amended foreign exchange manual in a circular entitled: “Re: Amendment of Memorandum 21 of the Foreign Exchange Manual,” signed by its acting Director, Trade and Exchange Department, Mr. W.D. Gotring. It was posted on its website friday.
It said: “A resident/non-resident Nigerian national and/or entities and foreign national or entity may invest in Nigeria by way of purchase of money market instruments such as commercial papers, negotiable certificates of deposits, bankers acceptances, treasury bills, etc subject to the following documentation requirements: tested SWIFT message evidencing the remittance of funds; board resolution of the local beneficiary authorising the investment (in the case of a company); purpose of capital specified in the SWIFT message; and evidence of the incorporation where applicable.”
The circular also pointed out that only funds that flowed through authorised dealers by residents, non-resident Nigerian nationals and companies specifically for investments shall be eligible.
“Consequently, balances on exports domiciliary and ordinary domiciliary accounts shall not be eligible for the investment,” it added.
Moody’s: Nigeria’s Liquidity Pressure Rising Amid Growth, Inflation Challenges
Meanwhile, Moody’s Investors Service reported yesterday that increasing liquidity pressures, rising inflation and stagnant growth are posing key challenges to Nigeria.
Moody’s, one of the leading global rating agencies stated this in the summary of a report, entitled “Government of Nigeria: FAQ on Credit Implications of Naira Depreciation, Low Oil Price and Broader Economic Challenges,” posted on its website. It however, pointed out that the report does not constitute a rating action.
Nigeria rated ‘B1 stable’ by Moody’s continues to face low oil prices, volatile oil production, a spike in inflation that has eroded purchasing power, foreign exchange scarcity and an economy that has entered technical recession.
Nigeria’s economy contracted by 2.06 per cent year-on-year in the second quarter of 2016, compared with 2.4 per cent in the corresponding quarter of 2015.
The deepening of Nigeria’s economic decline was largely due to the troubled oil and gas sector, which contracted by eight per cent year-on-year in the second quarter of 2016, as against the 6.8 per cent in the comparable period in 2015.
But Moody’s projected stagnation in real GDP in 2016 and only subdued growth at 2.5 per cent in 2017 for the country.
“We expect that Nigeria will contain pressures on its public finances in the short term. However, there is greater doubt about the severity of the impact of these challenges, particularly on government liquidity and economic growth, over the medium term,” VP-Senior, Credit Officer at Moody’s, Aurelien Mali said.
Overall, Moody’s viewed the recent devaluation of the naira as credit positive, adding that the new foreign exchange system should enable the naira to better absorb external shocks over time, and dollar availability should gradually increase.
Moreover, the fiscal benefit of the depreciation and the current oil price (which is above the budgeted oil price) exceeds the loss in oil output, it added.
However, it stated that the currency depreciation implies a material loss in purchasing power given import-price inflation. Moody’s expects inflation to accelerate to 18 per cent by year end, before falling to an average of 12.5 per cent in 2017 (based on the recent two percentage point hike in the central bank’s policy rate to 14%).
The rating agency expects that the depreciation will increase Nigeria’s external debt marginally to 5.2 per cent of GDP by end-2016 from 3.3 per cent in 2015.
“Moody’s fiscal outlook for Nigeria’s government’s fiscal position has not materially changed since April. The rating agency expects it to remain in deficit at around 3.7% of GDP in 2016, after posting a 3.8% deficit in 2015.
“States and local governments will benefit from the naira depreciation, offsetting the negative impact on oil production from the recent attacks in the Niger Delta. Moody’s expects authorities to reduce spending if revenues underperform.
“Attack on pipelines and key energy infrastructure in the Niger Delta have cut oil production to historic lows. If oil production stagnates at its current (or lower) level during the rest of the year, the expansionary spending envisioned by the current budget will be at risk, which would hurt growth.
“Meanwhile, the Central Bank of Nigeria has sent strong signals to the market that it will prioritise stemming inflation over promoting growth, as well as supporting the return of foreign capital.”
Nevertheless, the naira appreciated to N423 to the dollar on the parallel market friday, higher than the N425 to the dollar it closed the previous day. But on the interbank forex market, the spot rate of the naira closed at N314.77 to the dollar friday.