Experts divided as Afrexim-NNPCL $3bn loan deal stalls

EXPERTS are divided over measures for stabilising Nigeria’s foreign exchange rate as there has yet to be a green light on the $3 billion deal between the Nigerian National Petroleum Company Limited (NNPCL) and African Export-Import Bank (Afreximbank) expected to be used in stabilising the rate.

The NNPCL and Afreximbank had, on August 16, signed a commitment letter for an emergency $3 billion crude oil repayment loan.

The Loan is expected to provide some immediate relief for the Nigerian authorities in their ongoing fiscal and monetary policy reforms to stabilise the exchange rate.

It is intended to boost dollar liquidity in the Nigerian Foreign Exchange Market (NFEM), easing the struggle businesses and individuals go through in seeking dollars at the unofficial (black) market.

It is also expected to help the Central Bank of Nigeria (CBN) offset the $10 billion foreign exchange obligation owed to local lenders.

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However, the progress towards accessing the emergency loan has been slow as Afreximbank is still sourcing for oil traders to offtake the crude.

The right policy mix to stabilise the naira will be for the government to seek external borrowings, the Group Managing Director of Cowry Asset Management Limited, Johnson Chukwu, said.

He shared the view at a webinar on Thursday, October 5, while presenting a paper with the theme, ‘Nigeria’s Economic Landscape: An Overview of Q3 2023.’

“I have advocated that the government should go for bilateral or multilateral agencies to raise funds,” he said, pointing out that the most likely agency to approach should be the International Monetary Fund (IMF).

“It could be a 20-year loan, probably at a concessionary interest rate. That will allow us to clear those arrears. It is only when we clear those arrears that we can see stability in the exchange rate,” Chukwu argued.

According to him, if the exchange rate is stabilised, it will stabilise the inflation rate as the pass-through effect of the position of the local currency will moderate.

With that achieved, the authorities will only have to deal with inflation pressure from food items.

“The government must also avoid further Ways and Means (W&M) borrowing that leads to liquidity injection into the economy,” he said.

The Central Bank is already challenged with the weak macroeconomic environment as the task before its new leadership is daunting, and the tools to stabilise the exchange rate are not readily at the apex banks’ disposal.

“So, they will need to go to the government to understand how to raise foreign currencies to stabilise the exchange rate,” the Cowry boss said, stressing further that without stabilising the exchange rate, the authorities cannot stabilise the surging inflation rate.

Two of the three elements – exchange rate, inflation rate and interest rate, impacting economic stability are beyond the tools available to the apex bank, Chukwu noted.

“So they (CBN) need the support of the executive to access funding from bilateral or multilateral agencies to stabilise the exchange rate.

“The other aspect of inflationary pressure is coming from food production, so we also need the government to weigh in on the insecurity issues in the country,” he added.

Taking a different view, a finance expert and development economist, Kazeem Bello, told The ICIR that attracting debts from bilateral or multilateral institutions is not a good standard for any country to stabilise its local currency.

He believes the approach will create multiple problems, recalling that he had faulted the Afrexim-NNPCL $3 billion deal.

Bello noted that there were several ways to source funds to meet foreign exchange demands while not compromising the value of the naira.

For him, issues to be examined should be how to attract and generate the inflow of foreign currencies and how to utilise the resources to manage Nigeria’s market and meet its economic needs.

“The sources and the utilisation mechanism are therefore completely distinctive and should never be muddled together as we have repeatedly done in Nigeria, thereby creating all this confusion and trouble for the naira,” Bello said.

He highlighted ways to acquire foreign currencies for domestic needs, including export proceeds, inflows from foreign dividends or overseas repatriation, remittances, and inflow into the capital markets.

However, the way and manner in which these inflows are managed, especially regarding retention and retrievability of the currency usage, are of concern.

He said, “For instance, when you earn export proceeds, it is expected to assist in harnessing the foreign funds with which that country enters the global market to make foreign purchases for domestic needs.

“One of the significant reasons why countries keep foreign reserves is to ensure that they can effectively import goods and products at a competitive or what you call comparative advantage ways.”

Pointing out that the IMF offers some structural adjustment mechanisms with financial support to address domestic currency misallocation, currently experienced in Nigeria, Bello said the Fund had offered Nigeria some $5 billion in intervention to address and reposition its foreign exchange market.

However, the last administration rejected the offer when the IMF insisted that the Nigerian government operate a single window as a condition for the loan.

“By then, the Federal Government was totally against and unprepared to merge the different exchange rate windows.

“Rather than dissipate energy and resources in sourcing forex from bilateral or other multilateral institutions, the FGN (Federal Government of Nigeria) can return to the IMF to genuinely renegotiate the terms of that medium-sized restructuring support,” Bello suggested.



    He believes the term support comes with prudent implementation and is one of the reasons it may be more expedient to approach the institution given the disciplines that come with its financial support and implementation.

    He further explained that the restructuring package is not a loan but financial support to stimulate growth in critical sectors of the economy and assist with the short-term shock effect of the total deregulation of the foreign exchange market.

    Bello also disagreed with the perception that the naira devaluation was simply because of the shortage of foreign currencies.

    “Even if you inject $100 billion or $500 billion in an economy as big as Nigeria, it will only affect a minor change, but the naira will continue to be devalued,” he submitted.

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