As Naira Becomes Worst
OpenLife Nigeria reports that the Nigerian Naira has been confirmed as among the worst-performing currencies in Africa, the World Bank has said.
The World Bank noted that the currency weakened by nearly 40 per cent against the US dollar since a mid-June devaluation.
The global bank explained in its report titled, ‘Africa’s Pulse: An analysis of issues shaping Africa’s economic future (October 2023 | Volume 28).’
It stated that, “So far this year, the Nigerian naira and the Angolan kwanza are among the worst performing currencies in the region: these currencies have posted a year-to-date depreciation of nearly 40 per cent.
“The weakening of the Naira was triggered by the central bank’s decision to remove trading restrictions on the official market. For the kwanza, it was the decision of the central bank to stop defending the currency as a result of low oil prices and greater debt payments.”
Other currencies with significant losses so far in 2023, according to the World Bank, included South Sudan (33 per cent), Burundi (27 per cent), the Democratic Republic of Congo (18 per cent), Kenya (16 per cent), Zambia (12 per cent), Ghana (12 per cent), and Rwanda (11 per cent). It noted that parallel exchange market rates are also compounding inflationary problems for some countries in the African region.
In June 2023, the Central Bank of Nigeria directed Deposit Money Banks to remove the rate cap on the Naira at the official Investors and Exporters’ window of the foreign exchange market, and allow the free float of the Naira against the Dollar and other global currencies.
Since then, the Naira had fallen from N473.83/$ to around N800/$ officially.
Highlighting the widening difference between the parallel and official exchange rates of the Naira, the bank stated that this had been the case from March 2020 until June 2023.
It said the parallel rate premium increased to 80 per cent in November 2022, and then to about 60 per cent in June 2023, as the Central Bank’s interventions to restrict foreign exchange demand and keep the exchange rate artificially low were met with declining FX supply from oil revenues.
The unification and liberalisation of the exchange rates in June 2023 allowed the NAFEX rate to converge to the parallel one, closing the gap, it said.
It added, “However, resistance toward the increasing pressure on the Nigerian Naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium.”
Nigeria’s growth rate would decelerate from 3.3 per cent in 2022 to 2.9 per cent in 2023, the Washington-based bank highlighted.
It stated that the country’s oil production had remained below OPEC+ quota amid capacity issues and lower international oil prices and while non-oil economic activity, particularly industry and services still supported growth, policy actions to remove fuel subsidies and unify the exchange rates might be weighing on these activities in the short term.
The World Bank noted that activity in Nigeria’s manufacturing and services sector contracted in August. “Weak business confidence and rising input costs are driving the contraction of activity,” it said. It stresses business confidence appears to have weakened in Nigeria.
Commenting on the recent reforms of the new administration of Bola Tinubu, the global bank disclosed that purchasing power of households was expected to suffer in the short term.
It said, “The Tinubu administration implemented a series of reforms that included the removal of fuel subsidies and the devaluation and unification of the exchange rate system. Petroleum prices have more than tripled since the subsidies were lifted at the end of May.
Meanwhile, State governments are said to have borrowed about N46.17bn from three banks to pay salaries between January and June 2023, according to findings.
In an earlier report in Punch, the findings were based on an analysis of the half-year 2023 financial statements of some banks.
According to the findings, the states borrowed the most from Access Bank in six months, with a record of N42.97bn loan.
It was followed by Zenith Bank (N1.78bn borrowed) and Fidelity Bank (N1.42bn borrowed) within the six-month period.
According to the H1 2023 financial statement of Access Bank, the outstanding balance on the salary bailout fund was N58.84bn by June 30, 2023, from N101.81bn in December 2022.
“The amount of N58,842,651,795 represents the outstanding balance on the state salary bailout facilities granted to the bank by the Central Bank of Nigeria for onward disbursements to state governments for payments of salary of workers of the states.
The facility has a tenor of 20 years with a 2 per cent interest payable to the CBN. The bank is under obligation to on-lend to the states at an all-in interest rate of nine per cent per annum.
From this creditor, the bank has nil undrawn balance as at 30 June 2023,” Access Bank noted.
For Fidelity Bank, the H1 2023 financial statement showed that the outstanding balance on the salary bailout fund was N80.65bn by June 30, 2023, from N82.07bn in December 2022.
The bank noted “FGN Intervention fund is CBN Bailout Fund of N80.65billion (31 Dec 2022: N82.07bn).
This represents funds for states in the Federation that are having challenges in meeting up with their domestic obligation including payment of salaries.
The loan was routed through the bank for on-lending to the states. The bailout fund is for a tenor of 20 years at 9 per cent per annum.”
It added, “The bailout fund is for a tenor of 20 years at 7 per cent per annum and availed for the same tenor at 9 per cent per annum until March 2020, the rate was reduced to 5 per cent for one year period due to Covid-19 pandemic to March 2021 after which it was extended to February 2023.
CBN on August 17 2022 further reviewed the rates in response to economic outlook and approved the following order; All intervention facilities granted effective July 20, 2022 shall be at 9 per cent per annum while all existing intervention facilities granted prior to July 20, 2022 shall be at 9 per cent per annum effective September 1, 2022.”
According to the H1 2023 financial statement of Zenith Bank, the outstanding balance on the salary bailout fund was N125.14bn by June 30, 2023, from N126.92bn in December 2022.
The bank noted, “The Salary Bailout Scheme was approved by the Federal Government to assist state governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to banks nominated by beneficiary states at two per cent for on-lending to the beneficiary states at 9 per cent. The loans have a tenor of 20 years.
Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured.”
However, the borrowing occurred despite the slight increase in the revenue allocation to states.
There has been N540bn increase in the amount shared between the Federal Government, states, and Local Government Areas.
This was according to an analysis of the communiqués issued by the Federation Account Allocation Committee between January to July for 2022 and 2023.
In 2022, a total of N4.96tn was shared for the first seven months of the year. By 2023, a total of N5.5tn was shared for the first seven months of the year.
But about 25 states in Nigeria suffered a drop in their internally generated revenue and battled cash crunch in the first quarter of 2023.
Data obtained from the budget implementation report of each state showed that 25 states earned N182.26bn in Q1 2023.
This was a shortfall of 3.07 per cent or N5.77bn from the N188.03bn made in Q4 2022, based on a quarter-by-quarter analysis.
Although there are 36 states in Nigeria, Rivers and Sokoto have no data for Q1 2023 yet; Akwa Ibom has no data for Q1 2022, while Kwara, Edo, Kaduna, Lagos, Bauchi, Zamfara, Yobe, and Ogun have no data for Q4 2022.
Therefore, the figure for IGR was limited to 25 out of the 36 states in the country.
About 25 states projected an IGR of N219.56bn for Q1 2023 but only made about N182.26bn, which means that they had a revenue performance of 83.01 per cent.
This also means that the revenue underperformed by 16.99 per cent as it failed to hit the states’ revenue target.
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