The Economist Intelligence Unit, a renowned global research firm, has suggested that President Bola Ahmed Tinubu’s administration should consider foreign borrowing as a solution to rescue the Naira against the USD in the foreign exchange market. This recommendation was made in the latest Country Report on Nigeria released by EIU over the weekend.
According to the report, the Central Bank of Nigeria is facing a liquidity crisis that is hindering its ability to support the Naira and address the ongoing forex crisis. The report predicts that the Naira will continue to be volatile throughout 2024 unless significant measures are taken.
“We believe that foreign borrowing is necessary to rebuild the CBN’s buffers, clear the backlog of unmet foreign exchange orders, and restore confidence in the currency. This may only be achievable towards the end of 2024,” the report stated.
The report highlighted that the CBN currently lacks the liquidity needed to support the Naira, with a significant portion of its foreign reserves tied up in derivative deals. The recent restrictions imposed on oil companies repatriating export earnings further exacerbate the situation, raising the possibility of wider convertibility limits being imposed until the currency stabilizes.
In an effort to address the forex backlog, the Nigerian government secured a $3.3 billion loan from the African Export-Import Bank in mid-January through a crude oil prepayment facility. This loan follows a previous $1 billion loan from the African Development Bank and a pending $1.5 billion loan from the World Bank.
CBN Governor Olayemi Cardoso announced earlier this month that the apex bank had cleared all foreign exchange backlogs except for those of five commercial banks. Despite these efforts, Naira fluctuations persisted in the FX market, with the currency trading at N1,627.40 per USD on Friday at the FMDQ.
As Nigeria grapples with the challenges of the forex crisis, the EIU’s recommendation for foreign borrowing serves as a potential solution to stabilize the Naira and restore confidence in the country’s economy. The road ahead may be turbulent, but decisive actions could pave the way for a more stable financial future for Nigeria.
