* Oil production is expected to reach 1.8 million barrels per day by 2024
*Cardoso pledges to change central banks’ rhetoric
*Announces CBN policies aimed at improving lives
*Al-Senussi urges the main bank to fight inflation
Emmanuel Adeh and James Emegwu in Abuja
Fitch Ratings has affirmed Nigeria’s long-term foreign exchange exporter deficit outlook at ‘B-‘ with a stable outlook, listing the country’s key strengths such as a large economy, a developed and liquid domestic debt market, and large oil and gas reserves.
The confirmation by the global rating agency came at a time when the Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, reiterated his determination to change the story of the apex bank and make its policies more impactful on Nigerians. Cardoso gave the assurance while hosting former CBN Governor, Mr. Muhammadu Sanusi II.
Al-Senussi stressed the crucial role of the Central Bank and its enormous impact on the lives of citizens.
However, Fitch stated that the rating was constrained by weak governance, structurally very low non-oil revenues, high dependence on hydrocarbons, security challenges, high inflation, low net foreign exchange reserves, and persistent weakness in the exchange rate framework.
She acknowledged that the government had taken important steps to reduce fuel subsidies and reform the exchange rate framework much more quickly than it expected, and had ambitions to significantly increase revenues.
“However, there has recently been some pullback on reforms, particularly a lower degree of price discovery in the FX market compared to late June, raising doubts about the strength of this positive momentum,” Fitch said.
“In addition, new data on the Central Bank of Nigeria (CBN) suggests that its net foreign exchange position is much weaker than we previously thought. These factors are reflected in the stable outlook,” the rating agency said.
Fitch noted that while there has been faster progress on reform, constraints remain, and highlighted the government of President Bola Tinubu’s elimination of fuel subsidies, which cost nearly 2 percent of GDP in 2022.
“It also unified multiple exchange rate windows, and the official exchange rate for investors and exporters was allowed to fall by approximately 40 percent, with renewed volatility around the end of October,” the report said.
In the report released at the weekend, Fitch made clear that it views the Cabinet, especially Finance Minister Will Eddon, and the new central bank governor, Cardoso, as supportive of reforms.
However, the report said there remain significant social and political challenges to implementation, including accelerating inflation, which may account for the recent rollback of some reforms.
Regarding the challenging exchange rate liberalization, the agency noted that foreign exchange shortages continue to affect economic activity, promote foreign exchange liberalization, and inhibit foreign capital.
The statement read: “In October, the Central Bank of Nigeria lifted the ban on the provision of foreign exchange for imports of 43 items, and is currently proceeding with plans to liquidate approximately $6.7 billion of unsatisfied foreign exchange forward contracts. However, there has been a renewed widening in The gap between the official and parallel exchange rates has increased since July with a premium of more than 30 percent above the official rate.
“Average daily foreign exchange trading volume in the official exchange rate window has fallen to near April 2023 levels (well below pre-pandemic), at $95 million in September.”
Fitch raised concerns about the weakness of the net foreign exchange reserve position, saying that the total foreign exchange reserves at the Central Bank of Nigeria fell to $33.2 billion in September, from $37.1 billion at the end of 2022.
He noted that “In August 2023, the Central Bank of Nigeria published its 2022 consolidated financial statements, its first since 2015. These suggest that the net foreign exchange position is weaker than we understood, although significant gaps remain, preventing a reliable assessment.” .
“CBN’s short-term liabilities at the end of 2022 include $5.5 billion of foreign currency securities lending, and $6.8 billion of foreign currency forward receivables.
“There is a particular lack of detail about the approximately $32 billion additional “foreign currency contracts, over-the-counter futures contracts, and currency swaps,” which are recorded as an off-balance sheet “liability” and have not been apportioned.
“While this likely includes some naira-settled non-deliverable contracts and longer duration obligations, it suggests that local banks’ swaps with the Central Bank of Nigeria may be higher than Fitch’s previous estimate of $10-12 billion.
“However, we expect most FX swaps to continue to be rolled over, reflecting incentives for banks to invest the naira received in high yield sovereign securities and the sector’s limited reliance on FX liquidity swaps, given the large FX placements with international banks.”
The report expected a broadly stable current account surplus, averaging 0.5 percent of GDP in the 2023-2024 period, but expressed concern about the lack of details about the recently announced forecast of $10 billion in foreign currency inflows.
She said: “There is a lack of details about the government’s recent announcement to raise $10 billion in foreign currency, including whether this includes World Bank budget support loans of $1.5 billion.
“Following the sharp depreciation of the currency this year, Fitch assumes that exchange rate adjustments will proceed more gradually in subsequent years. Near-term sovereign external debt service is moderate, at $4.3 billion in 2024 (10.2 percent of revenue The current externality is below the projected 2024 “B” average of 17.7 percent).
Regarding oil revenues, Fitch reported that there was only a partial recovery in oil production, to 1.57 million barrels per day (including condensates) in September from a low of 1.25 million barrels per day in September 2022.
“We expect a moderate increase in 2024-25, averaging 1.81 million bpd, supported by improved onshore monitoring. However, this remains well below the 2.09 million bpd in 2019, reflecting chronic underinvestment in the sector, and the potential Continuous production interruption.
Fitch stressed that the budget deficit will shrink, and expected it to decline by 0.2 percent in 2023, to 5.2 percent of GDP, as strong growth in non-oil revenues and the cancellation of fuel subsidies are offset by higher capital spending and weak performance in oil profits. From Nigeria. National Petroleum Corporation Limited (NNPC).
The rating agency stated: “We expect a 1.1% of GDP rise in government revenues in the period 2023-2025, to 8.5% of GDP, supported by increased government efforts to mobilize non-oil tax revenues (including the establishment of a presidential fiscal and tax system) “. Reform Committee), but this remains one of the lowest ratios of any sovereign rated by Fitch.
“This supports our expectations that the budget deficit/GDP will narrow to 5.0 percent and 4.6 percent in 2024 and 2025.”
As for Nigeria’s public debt (excluding Central Bank of Nigeria loans), Fitch Ratings reported that its average maturity is a fairly long 9.7 years.
“Securitization of N23 trillion of CBN loans at a lower interest rate of 9 percent has helped contain overall government interest costs, but at nearly 42 percent of revenues, total interest expenses are well above average,” she said. B” of 10.9 percent.
“We expect recourse to Central Bank of Nigeria financing in 2023-24 to be significantly lower than in 2022, although risk demand from the domestic banking sector appears weaker than expected, despite ample liquidity and strong deposit growth.”
It also expected that GDP would slow to 2.6 percent in 2023, from 3.3 percent in 2022, and expand to 3.2 percent in 2024, driven by the services sector and higher oil production.
“Nigeria’s already structurally high inflation rate rose to an average of 25.5 percent y/y in the third quarter of 2023, from 20.3 percent y/y in the third quarter of 2022, partly reflecting the removal of fuel subsidies,” the report said. The depreciation of the naira.
“Fitch expects inflation to moderate to 21.1 percent in 2024 from an average of 24.8 percent in 2023, supported by lower deficit monetization, but well above the B averages of 6.0 percent and 4.9 percent, respectively.” .
Cardoso vows to change CBN’s narrative
The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has reiterated his determination to change the narrative around the bank and make its policies have a stronger impact on the population.
Cardoso stressed that under his supervision, the apex bank will focus on its core mission of price stability, specifically curbing rising inflation, which has continued to distort prices.
The Governor of the Central Bank of Nigeria made this assurance while hosting the former Governor of the Central Bank, Mr. Muhammadu Sanusi II.
Cardoso had received the impact investment community led by Sanusi, the 14th Emir of Kano and successor to the Tijaniya Sufi order in Nigeria and neighboring countries.
Cardoso expressed his hope that at the end of his term he would leave behind a central bank whose policies “positively impacted people’s lives.”
Addressing the visiting team at his office, Cardoso said his team was determined to change the narrative around the apex bank and make the bank more influential in the lives of Nigerians by reducing inflation.
He thanked the community for the visit of the Central Bank of Nigeria, noting that it represents an excellent future for Nigeria, with the potential to transform the country’s economy by taking advantage of investment opportunities available across the country and the world.
Cardozo praised the quality of the community’s leadership, especially in its efforts to create awareness and build partnerships.
In a statement, Cardoso said the Central Bank of Nigeria will collaborate with the impact investing community to initiate frameworks that will encourage investments as well as positively impact the lives of Nigerians, and contribute to economic growth.
Sanusi highlighted the role of the central bank in significantly impacting the lives of Nigerians through its activities. He said that often people do not seem to appreciate the impact of central bank activity until after it fails.
The former CBN governor has expressed concerns about the current inflation rate. He urged the new leadership at the Central Bank of Nigeria to work consistently to bring down the rate, which he noted had severely impacted people’s wealth.
He also acknowledged the importance of long-term planning by the Central Bank of Nigeria in achieving its goals, stressing the need for fiscal authorities to focus on agriculture and education, especially for girls.
Sanusi pledged his continued support, alongside the impact investing community, to the CBN in achieving its goals.
In her remarks, the President of the community, Mrs. Ibukun Awosika, said they were at CBN to register their readiness to support what the bank and the Federal Government are doing in terms of changing the investment climate in Nigeria by redirecting resources to areas where they will be able to make the most positive impact.
Awusika said that more than $200 trillion is available worldwide in investment funds, of which $1 trillion is impact investments.
She stated that the community, which has a presence in over 41 countries, is ready to merge with traditional investment practitioners to make an impact in the country.
Awosika stressed the importance of social investment and requested the support of the Central Bank of Nigeria to enable the authority to achieve its goal.
For his part, CBN Deputy Governor for Corporate Services Management, Dr. Bala Bello, stressed the importance of investment, noting that global capital is moving towards social investment. Bello thanked the team for its support, noting that cooperation and effective communication are vital in successfully overcoming the current challenges in the country.