The second half of 2024 is expected to see a significant influx of capital, according to a report by Standard Bank. The report predicts $5.1 billion in funding inflows into the Nigerian economy.
Standard bank forecast foreign inflows worth $5.05 billion into the country from a Eurobond sale and NNPC crude payment facility from AfreximBank.
It projected from previous issuance of Eurobond, that Nigeria may issue between $3 billion and $5 billion in a dollar-denominated local bond.
In addition,the balance of $1.05 billion from the Nigerian National Petroleum Company (NNPC) crude pre-payment facility ($3.30 billion) in May, is a source of the Bank projection of $5.05 billion inflow. It added that the Afreximbank had verified the availability of crude oil in relation to the facility.
Furthermore on international financing It said that the Board of the World Bank will reportedly meet on 13 June to consider the final approval of Nigeria’s request for a $2.25 billion financing package, comprising $1.50 billion.
“Development Policy Financing (in two equal tranches of $750 million) and $750 million in Programme-for-Results financing,”
“Under the Development Policy Financing, the first tranche will be disbursed immediately after World Bank board approval and the government requests a drawdown. However, the second tranche disbursement will be based on implementation of reforms and while the World Bank assesses the macroeconomic policy framework as adequate for budget support.”
The report said that the current exchange rate volatility might have been caused in part by the rise of geopolitical tensions in mid-April when Iran launched drone strikes at Israel, which likely prompted foreign investors to sell Naira assets in a flight to safety.
It stated that the naira appreciated for most of April almost as quickly as it depreciated earlier in the year.
The report mentioned that the statement by Olayemi Cardoso, Central Bank of Nigeria (CBN) governor, on the apex bank not intervening in the FX market might be interpreted negatively.
“This may have been interpreted negatively during times that intervention is clearly needed to boost investor confidence and support the naira, while also assisting price discovery,” the report stated.
It said that the exchange rate premium between the official and parallel market rates has reverted to pre-COVID levels due to CBN FX market liberalisation and the FMDQ change in FX computation methodology ensuring the official exchange rate as reflecting market realities.
“FX inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) continue to improve up to pre-COVID levels, supported by an increase in foreign inflows to levels not seen since February 20,” the report stated.
However, it stated that these inflows snapped after two consecutive months of increase, declining by 48.1 percent month-on-month, to $1.95 billion in April, after reaching a 50-month high of $3.75 billion in March.
“This decline reflects the loss of momentum in foreign inflows to $478.10 million, a decline of 68.9 percent month-on-month, and inflows from local sources
To $1.47 billion, a 33.6 percent decrease month-on-month,” the report said.
Foresees exchange rate to settle at N1,219.32/$
The report however, predicted the Naira to close at N1,219.32/$ by December 24 as well as higher inflationary pressures, and warned that increased risk-off sentiment, due to heightened geopolitical uncertainties, may reduce the FPI inflows that have been supporting the naira in recent weeks.
It added, “Importantly, we also factor in our inflation and interest rate projections into December. Further, we assume the CBN as maintaining intermittent FX supply to commercial banks and Bureau De Change (BDC) operators.
It said that currency movements will likely be volatile because FX demand pressures will likely resurface intermittently, particularly in the summer.
“We adjust our currency forecast to reflect this new reality as well as expectations of the naira receding further this year. The CBN’s communication and transparency has improved significantly since the first MPC meeting in February. The CBN has been engaging investors and stakeholders on its actions and forward guidance regarding monetary policies.”
Standard Bank further noted that it expected the Monetary Policy Committee (MPC) to increase the MPR further, by 100 bps, when it meets on May 20, as inflation was likely to rise further in April and peak in May, based on the bank’s current estimates.
The report noted the recent decline in gross FX reserves by $2.3 billion, from the year-to date peak of $34.45 billion on March 18, to $32.15 billion as of April 26.
“We view the recent decline in FX reserves as partly due to the repayment of existing debt obligations and the CBN resuming FX sales to support the naira,” it noted.
It said that the key risks to our currency forecast include fiscal authorities returning to the use of the CBN’s overdraft facilities amidst an expansionary budget, a U-turn of CBN’s tightening stance, leading to a wider negative real interest rate gap, though this seems unlikely, a significant dip in crude oil production, lowering dollar earnings and potentially causing the CBN to reduce FX sales to BDCs and NAFEM; and inflation overshooting our expectations meaningfully.
