Nigeria still has a long way to go in recovering from the slump in foreign exchange inflows into the economy as the country is projected to suffer further decline.
A new report by PWC said the decline in global trade growth may also adversely affect Nigeria’s trade balance in addition to FX inflows.
Nigeria currently battles to meet forex obligations despite the floating of naira, which has further widened the disparity between the official and the parallel market.
The exchange rate between the naira and dollar further devalued on Tuesday at the Investors & Exporters (I&E FX Window) selling at N848/$ according to data from FMDQ website before closing at N775 on Wednesday.
At the parallel market, the dollar exchanged for N1,100, according to checks by our correspondent at a popular parallel market in Lagos.
Amidst this worsening dollar crisis, there are fears the worst is yet to come as the PWC report suggests.
It would be recalled that the National Bureau of Statistics (NBS) report last week indicated that importation of foreign currencies into Nigeria dropped to $1bn in the second quarter of 2023.
The NBS in the report titled, Nigeria Capital Importation Q2 2023, said the figure was a 32.9 per cent lower when compared to the $1.535bn paid into the Nigerian economy during the same period in the second quarter of 2022 and down by 9.04 percent from the 1.13bn in Q1 2023.
But PWC in its Nigerian Economic Outlook for the month of October stated that decline in global trade growth may adversely affect Nigeria’s trade balance and FX inflows.
According to the report, remittance flows to low and middle-income countries are expected to remain resilient but slow to $656 billion (2022: $647 billion), which represents growth of 1.4% by 2023 compared to 8% growth in 2022.
The slow growth is due to the softening of economic activity in remittance source countries, limiting employment and wage gains for migrants. Remittance flows to Sub-Saharan Africa in 2022 was largely driven by strong remittance growth in Tanzania (25%), Rwanda (21%), Uganda (17%), Ghana (12%), and Kenya (8.5%).
“Though remittances to Nigeria accounted for 38% of the total flows to the region, it increased by only 3.3% to $20.1billion.
The report further observed that there has been a rise in the inflows of FX from autonomous or non-CBN sources, which has led to the widening divergence between the official and parallel market rates.
It said, “Since 2007, the FX inflows from autonomous sources exceeded inflows from the CBN. The implication of official interventions may not accurately reflect the market demand and supply dynamics as annual inflows are skewed towards unofficial sources.”
The report further pointed out that the sustained rise in public debt may negatively affect the country’s credit ratings, subsequently increasing the cost of borrowing.
“The rise in Nigeria’s public debt to N87.4 trillion in Q2 2023 could be attributed to the impact of securitisation of ways & means, and the naira devaluation.
“Foreign suppliers may not accept letters of credit amid unsettled $7 billion FX obligations to domestic lenders. This may lead to less imports of the much-needed inputs and goods for manufacturing and retail/wholesale trade, which may heighten inflationary pressures and negatively impact GDP growth.
“Nigeria debt service to revenue ratio increased to 96% in 2022 raising concerns about its widening fiscal deficit, high debt servicing to revenue and rising debt to GDP ratios.”
The report highlighted five suggestions, which include Boosting of Investors’ Confidence – Clear Nigeria FX Management Story; Manage for flexibility and shocks – withstand external shocks with a pocket of sequenced policy execution; Short-term fix to enhance foreign exchange liquidity; Deepening of financial markets and Longer-term sectoral policy to maximise exports or deepen domestic consumption.
Director/CEO, of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf in a chat with our correspondent yesterday said it will take time before Nigeria recovers from the drop in capital importation.
He said, “You know a lot of things have gone wrong and some of those things that have gone wrong are very fundamental and they have badly affected the confidence of investors and you know when confidence is broken, it takes time to regain it back.
“The way out is what the government has been trying to do, first to clear the backlog of foreign exchange obligations and the maturing obligations, the outstanding letters of credits and the currency swaps. Because if you don’t clear those backlogs, it would be sending very bad signals to other investors across the world and they would not bring their money no matter what you do.”
He said Nigeria must scale up efforts to earn foreign exchange, adding that Nigeria must also reduce the importation of petroleum products, which he said is putting a lot of pressure on the nation’s foreign exchange.