Analysts Not Optimistic Over IMF’s $3.4bn RFI Loan, Others | Independent Newspapers Nigeria

LAGOS  – Financial Analysts are less optimistic about a recent Fitch rating in its revised ranking of Nigeria’s Global Economic Outlook said to be stable on external and fiscal risks, following the disbursement of IMF’s $3.4 billion Rapid Financing Instrument (RFI), reduced uncertainties, steady oil prices, and the reopening of the economy. 

The analysts also contended that the subsequent adjustment of the official exchange rate to N380.0/$1.0 in August by the Central Bank of Nigeria (CBN), removal of energy subsidies, and the recovery in oil prices by the Federal Government since Q2:2020, which would have supported revenues in Q3:2020, may not be enough to significantly close the fiscal funding gap to buttress the Fitch rating. 

According to the Fitch rating, after downgrading Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ with a negative outlook in April 2020 due to COVID-19 pressures, the rating agency revised Nigeria’s outlook to stable after the emergence of factors such as reduced uncertainties, stable oil prices, and the reopening of the economy. 

The rating agency agreed also that CBN’s management of external liquidity pressures through partial exchange rate adjustment, capital controls, FX restrictions and the rise in external reserves were largely influenced by the disbursement of IMF’s $3.4 billion Rapid Financing Instrument (RFI). 

However, the rating agency cited the persistence of external vulnerabilities due to an overvaluation of the naira and a large FX demand backlog. 

It pointed out that oil prices have stabilised, while global funding conditions have eased and domestic restrictions on movement have started to be relaxed. 

“Nigeria has navigated external liquidity pressures from the shock through partial exchange rate adjustment combined with de facto capital flow management measures and foreign-currency (FC) restrictions, while disbursement of external official loans has supported the level of international reserves”. 

Dr. Muda Yusuf, Director General of Lagos Chamber of Commerce and Industry (LCCI), in an exclusive interview with Daily Independent, said the revision to the rating is surprising given that severe external and fiscal financing pressures persist. 

“While Fitch alluded to stable oil prices, the potential threat to oil demand from the second wave of the pandemic is putting downward pressure on prices,” he said. 

According to Yusuf, the nation’s economic growth trend, measured by the growth of the Gross Domestic Product (GDP), has not been too impressive in the last six decades. 

He said the Nigerian economy, according to data by the World Bank, reported annual contraction 13 times (1966, 1967, 1968, 1975, 1978, 1981, 1982, 1983, 1984, 1993, 1994, 1995 and 2016) between 1960 and 2019. 

“It remains a major worry, even with the revised rating by Fitch, that the economy, which is still structurally defective given its excessive dependence on the oil & gas sector, still creates serious vulnerability risks. 

“Regrettably, successive governments failed to utilize proceeds from oil exports during periods of high oil prices to develop and strengthen the capacity of the non-oil sector, especially in fixing infrastructure. 

“Even before the emergence of the COVID-19 the economy was confronted with myriad challenges, including spiraling inflation, portfolio investment outflows with attendant impacts on external reserves and exchange rate depreciation, rising debt profile and sustainability concerns, poor domestic revenue mobilisation, huge infrastructural deficit, tough operating environment, high unemployment and poverty rates, weak economic growth, contracting income per capita and lack of synergy between fiscal and monetary policies. 

“The impact of the COVID-19 pandemic on the economy has been very profound, with the International Monetary Fund and the World Bank anticipating a contraction of 5.4% and 3.2% respectively by end-2020 which would be the fourteenth annual contraction since the country gained of the COVID-19 crisis propelled the fiscal authorities to take bold steps on age-long policy reforms required for medium to long-term macroecoindependence in 1960. The occurrence nomic stability. Notable in this regard includes the economic liberalisation in the downstream segment of Nigerian oil & gas industry, as well as the power sector”. 

Chief Tunde Adetunji, the African Cultural Ambassador, President/CEO of Africa World Museum Center and Africa Heritage Foundation, in a telephone conversation with Daily Independent, from Atlanta Georgia, USA, pointed out that the Fitch rating weaknesses were balanced against the large size of Nigeria’s economy, low general government (GG) debt relative to GDP, small FC indebtedness of the sovereign and a comparatively developed financial system with a deep domestic debt market. 

Chief Adetunji, who emphasised that the key evaluation criteria for Fitch ratings of either positive or negative are usually external finances, macroeconomic policies, and public finance, said: “Nigeria, from the report, has navigated external liquidity pressures from the shock, through partial exchange rate adjustment, combined with de facto capital flow management measures and foreign-currency (FC) restrictions, while disbursement of external official loans has supported the level of international reserves. Though external vulnerability persists from currency overvaluation and a possibly large FC demand backlog, this is adequately captured by the ‘B’ rating, in our view.” 

Dr. Timothy Olawole, Director General, Nigeria Employers’ Consultative Association (NECA), in conversation with our correspondent, said as the Fitch revises the outlook on the country’s long term foreign currency Issuer Default Rating (IDR) to stable from negative and affirmed the IDR at “B”, this portends that tightening foreign currency supply for trade and financial transactions could harm growth and exacerbate inflationary pressures, driving further misalignment of the naira’s real exchange rate. 

“We believe that the Central Bank of Nigeria (CBN) should continue to prioritize exchange rate stability over other policy goals, continued effort in unifying the exchange rate should be further encouraged. 

The revised rating was hinged on the perception of an improvement in the uncertainty that the coronavirus pandemic created around the performance of the country’s economy, as global oil prices firms up and curbs movement are relaxed. Nevertheless, the outlook reflects weak fiscal revenues, comparatively low governance and development. 

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