The Central Bank of Nigeria is facing a liquidity crisis, according to a recent report by the Economist Intelligence Unit. The report highlights the struggles of the naira, which has weakened significantly against the dollar following the unification of the country’s foreign exchange market. This has led to a second devaluation, making the naira one of the worst-performing currencies globally.
The EIU suggests that the CBN may need to resort to foreign borrowing to support the naira and meet its foreign exchange obligations. This could involve tapping into international capital markets, which may come with high costs. The report also mentions the return of fuel subsidy in Nigeria, which has incentivized the Federal Government to borrow from the CBN.
President Tinubu’s market reforms, including the elimination of petrol subsidies and the liberalization of the exchange rate, have faced challenges. The EIU warns of potential mass protests and strikes due to the policy-induced crisis. The report also predicts a peak in the Monetary Policy Rate and continued inflation driven by the devaluation of the naira.
Despite challenges, the report highlights some positive developments, such as higher crude output and the expected production from the Dangote refinery. The refinery could potentially provide relief, although Nigeria is likely to continue depending on fuel imports for the foreseeable future.
Looking ahead, the EIU projects further depreciation of the naira and warns of risks such as mass unrest if market reforms are rushed. The African Development Bank echoes similar concerns, emphasizing the potential for internal conflicts due to rising fuel and commodity prices.
In the midst of these challenges, the Central Bank of Nigeria has taken a firm stance on extending facilities to the Federal Government until outstanding obligations are settled. This move aims to ensure compliance with the law and maintain financial stability.
Overall, the report paints a complex picture of Nigeria’s economic landscape, highlighting the need for careful navigation amidst ongoing challenges and potential risks.
