*Analysts say development may convey mixed signals, erode investors’ confidence
*Obaseki decries persistent inflation, dollarisation of economy
*Bloomberg: Dollar scarcity pushing more African countries into economic crises
James Emejo and Emmanuel Addeh in Abuja
Strong indications emerged yesterday that the 294th meeting of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) slated for between November 20th and 21st, 2023, going by the apex bank’s calendar may not be held this week.
Owing to this, some financial market analyst and market participants have expressed concerns over the likely implications on the market.
This was just as Edo State Governor, Mr. Godwin Obaseki, decried the surge in inflation and the dollarisation of the economy
However, a report by Bloomberg noted that current continent-wide scarcity of the United States dollar was further pushing many already beleaguered African countries into deeper economic crises,
On the MPC meeting, apart from the fact that there was no official announcement of the meeting on the apex bank’s website, sources also confided in THISDAY yesterday that the MPC was unlikely to meet as scheduled.
This would be the second consecutive time that the MPC meeting would be skipped since the CBN Governor, Mr. Olayemi Cardoso formally assumed office on September 22, 2023 – three days to the 293rd MPC which was scheduled between September 25 and 26 – and failed to hold.
The inability of the central bank to convene the MPC meetings under its new leadership has continued to generate concerns among analysts and stakeholders amid the current galloping inflation partly fuelled by the removal of fuel subsidy, FX liquidity challenges, and the increasing cost of funds in the economy among others.
Analysts who spoke to THISDAY said the development may convey mixed signals to both local and foreign investors regarding the policy direction of the government.
Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the inability of the CBN to hold the meetings so far may send mixed signals to both local and foreign investors regarding the direction of the economy.
He said, “The MPC meeting is the official policy direction platform to project the monetary policies of the federal government through the CBN and its positions on economic issues go a long to determine various positions taken by critical stakeholders in the economy.
“The inability of the CBN to hold the meeting so far might send mixed signals to both local and foreign investors as regards the policy direction of the economy.
“Although the CBN has been communicating its policies in the past couple of weeks, the MPC meeting is critical and should be held regularly. If the new CBN Management team fails to hold its maiden MPC meeting this week, it could cause anxiety in the economy.”
On his part, Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the lack of clear guidance on interest rates, inflation targets, and other monetary policies may result in market volatility and reduced investor confidence.
He said regular MPC meetings play crucial role in providing a framework for economic decision-making and maintaining stability.
He told THISDAY, “If the Central Bank of Nigeria fails to hold regular MPC meetings, it could lead to increased uncertainty in the investing public. The lack of clear guidance on interest rates, inflation targets, and other monetary policies may result in market volatility and reduced investor confidence.
“Additionally, the absence of timely policy adjustments in response to economic changes could impede the central bank’s ability to effectively manage inflation, exchange rates, and overall economic stability. In the long run, this could have negative repercussions on the economy, hindering sustainable growth and development.
“However, it should also be noted that Mr. Cardoso resumed office at the tail end of September, and given the multitude of economic issues faced by the country, he may have stalled on holding MPC in order to align with fiscal policy so as not to send mixed signals to the investing public.
“I suspect that MPC may be delayed further until there is a clear indication of the direction of government spending in the 2024 budget.”
On September 21, the CBN had announced the postponement of its 293rd meeting till further notice.
The meeting was initially scheduled for Monday and Tuesday, September 25 and 26, 2023, respectively. In a statement issued by CBN Director, Corporate Communications Department, Dr. Isa AbdulMumin, the bank had said a new date would be communicated in due course.
However, in an interview with THISDAY, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, cautioned the MPC against making hasty policy pronouncements.
He said, “My question is, what value did the quarterly meeting of the past dispensation add to the economy? Those quarterly pronouncements of the CBN were putting pressure on the financial sector. They need to examine themselves well enough before coming to make pronouncements.
“Many factors are contributing to the macroeconomic headwind, most of these factors do not have monetary policy solutions and therefore not controlled by CBN. Holistic solutions must be sought in arriving at economic solutions.
“The U.S, Eurozone, China, and other developed economies are experiencing a major drop in their inflation rates, while Nigeria’s inflation rate continues to increase month on month irrespective of measures taken by the apex bank.”
Obaseki Decries Persistent Inflation, Dollarisation of Nigeria’s Economy
However, Obaseki who spoke while delivering his keynote address at the Delta State Executive Retreat 2023 with the theme, “Delivering the M.O.R.E Agenda for advancing Delta: Strategy and Enablers,” has bemoaned the dollarisation of the economy.
The governor said, “Everything we do today is based on the dollar exchange rate, and it’s like most of our existence depends on what we import. Imagine a country of 200 million people that has to depend on an external economy.
“We spend about $40 billion a year in this country and you would expect that it should be enough for any country to develop but no, today, we earn less but our demand for foreign exchange is more.
“We spend about $2 billion paying school fees abroad, $3 million for healthcare treatment abroad, about $500 million buying milk and milk products, and about $10 billion importing food. We no longer earn dollars as we used to but the dollars keep going up. We will deal with inflation for a long time.”
Obaseki, who called for deliberate steps to change the narrative, said, “Four years ago, it was a different world, a different country, and a different Delta State but things are different today regarding how we handle our development because COVID-19 has changed our thinking.
“Nobody envisaged that there would be a pandemic that would put the world at a standstill. So, it’s not advisable to continue to adopt the same method.
“The implication is that leaders across the world pumped money into the economy to keep the economy moving and this led to global inflation which we never had in many decades and centuries.”
According to him, “States, and local governments all go and collect salaries and spend more than they earn from oil. They just collect money from Abuja to just share and no country develops like that.
“The federal government has the responsibility of monitoring and fiscal policy. They can go the extra mile by printing money and spending what is not there. The federal government over the decade has perfected that and it got to a crisis point in the last administration in Nigeria.
“The nation has to deal with unprecedented levels of inflation. Inflation in Nigeria has gone up to almost 30 percent today. Who can borrow money and pay interest of 30 percent? It’s not possible. If you are not giving me 30 percent of my money, I am actually losing money. Can an economy operate like this at 30 percent? Who can borrow at 30 per cent to do business and make a profit? It’s not possible.”
He said, “By the time a State borrows at 30 percent, will it be able to pay back? It will spend most of its resources paying debt. What is frightening and worrisome is that we depend so much on dollars for our existence.
“The exchange rate is all we focus on. In Nigeria, we focus on the exchange rate instead of worrying about the interest rate because everything we do today is centered on the dollars.”
In his remarks, Delta State Governor, Sheriff Oborevwori thanked Governor Godwin Obaseki for the insight, adding, “We are proud to have you in our midst as we consider it very important for you to participate and share your experience of over seven years as governor of Edo State”.
However, analysts also expressed reservations over the efficacy of previous policy pronouncements by the MPC, stressing that such decisions had only added pressure to the economy.
Bloomberg: Dollar Scarcity Pushing More African Countries into Economic Crises
The current continent-wide scarcity of the United States dollar is further pushing many already beleaguered African countries into deeper economic crises, a Bloomberg report has stated.
Amid a deepening shortage of hard currency on the continent, the report stated that governments are now turning to bartering, currency devaluations, central bank exchange controls, and help from the International Monetary Fund (IMF) and Middle East to shore up their balance sheets.
The dollar shortage is also hurting consumers and local businesses as import costs soar, fuelling inflation, the report noted.
“In Nigeria, prices of prescription drugs for conditions such as hypertension and diabetes have tripled in the past year. One of Zimbabwe’s biggest retailers, OK Zimbabwe, said sales volumes are now below break-even point due to rising costs and an exchange rate which has driven customers to the informal sector.
“And in Malawi, the price of corn, a food staple, has more than doubled over the past year,” it stated.
In the same vein, it noted that investors are rewarding nations whose efforts to boost dollar liquidity are paying of, but are punishing those that can’t guarantee access to the currency they need to invest and repatriate returns.
They are also steering clear of countries without adequate reserves to cover import costs or debt repayments. “African currencies are the worst performers in the world this year, with about a dozen sliding at least 15 per cent against the dollar,” it added.
In Nigeria, the country’s longest-dated naira bond, it said, was trading at a record 18 percent yield.
But, the report stressed that higher domestic yields aren’t attracting foreign buyers, who worry about depreciating local currencies and difficulties in repatriating returns.
Also, in Zambia, for example, foreign holdings of domestic debt fell from 29 per cent at the end of 2021 to around 22 per cent currently, partly due to the restructuring process as well as liquidity issues.
“Dollar holdings are part of the value proposition,” said the Country Risk Manager at the Economist Intelligence Unit, Benedict Craven.
“Will investors be able to trade using foreign exchange from official sources? Will they be able to expatriate their dividends abroad? These questions are separating where investment is going,” he added.
The dollar squeeze has played out most obviously in local currencies. Eurobond issuers who were forced to devalue this year include Egypt, Nigeria and Angola.
Dwindling capital inflows have also seen the likes of Kenya’s shilling and Zambia’s kwacha weaken to record lows versus the greenback. The former has sizable dollar-debt repayments due next year, while the latter is in default on its eurobonds.
Kenya’s dollar bonds have handed investors losses of 2.1 per cent since the beginning of July, when US Treasury rates started rising as the “higher-for-longer” interest-rate narrative took hold.
That compares with the 1.7 per cent average loss for emerging and frontier peers in a Bloomberg sovereign dollar bond index. Nairobi’s benchmark stock index has slumped 32 per cent in 2023, the most among 92 global markets tracked by Bloomberg, while the shilling has declined 19 per cent.
In Zambia, Mozambique and Nigeria, the inability to access foreign financing has forced governments to ramp up domestic issuance in shallow markets, pushing up the cost of borrowing. African sovereigns have been locked out of international debt capital markets since April 2022.
However, in some cases, the IMF is coming to the rescue. It said last week it will expand financing to Kenya by $938 million to bolster its reserves, ahead of a $2 billion eurobond maturity in June. That sent yields on the 2024 notes tumbling almost 200 basis points in four days through Friday — though they remain well above 14 per cent.
On the other hand, countries with less pressing foreign-exchange needs are becoming more appealing, Bloomberg stated.
“Countries with less punishing dollar-denominated loan amounts and bond repayments, and large stocks of foreign reserves, are most attractive,” said David Omojomolo, Africa economist at Capital Economics. “And more so those that have made large FX adjustments already,” he added.
