… As Fed Govt may borrow N390b in three months
The Central Bank of Nigeria (CBN) says it has discontinued the sale of foreign exchange to Bureau De Change (BDCs) operators in the country.
The CBN governor, Mr Godwin Emefiele, announced this at a news conference on Monday in Abuja.
He also announced that the apex bank would now permit commercial banks in the country to begin accepting cash deposits of foreign exchange from their customers.
He said that the apex bank’s decision was due to the dishonest activities of some of the operators of the BDC of such activities as financing of unauthorised transactions with foreign exchange procured from the CBN.
“Whereas the bank has continued to sell dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates of as high as N250 per dollar.
“In view of the above, the management of the CBN has reached the decision that the bank will henceforth discontinue its sale of foreign exchange to BDCs.
“Operators in this segment of the market will now need to source their foreign exchange from autonomous sources. They must however note that the CBN would deploy more resources to monitor these sources to ensure that no operator is in violation of our anti-money laundering laws,” he said.
Emefiele said that the decision was to reduce pressure on the country’s foreign reserve.
He explained that making forex available for the BDCs, importation of petroleum products, critical raw materials and school fees, was taking its toll on the nation’s reserve.
Emfiele said due to this, the Foreign Exchange Reserves had depleted to 28 billion dollars today from 37.3 billion dollars in June 2014.
“More disturbing, though, is the financial burden being placed on the bank and our limited foreign exchange.
“The CBN sells $60,000 to each BDC per week; this amount translates to $167 million per week and about $8.6 billion per year.
“To curtail this reserve depletion, we have reduced the amount of weekly sales to $10,000 dollars per BDC. This translates to $28.4 million depletion of the foreign reserve per week and $1.476 billion per annum.
“This is a huge haemorrhage on our scarce foreign exchange reserves and cannot continue; we are also concerned that BDCs have become a conduit for illicit trade and financial flows,” he said.
According to Emefiele, the new policy aims to ensure that the country’s financial system remains stable and not intended to inconvenience ordinary Nigerians.
Meanwhile, the Federal Government would borrow between N260 billion and N390 billion in the first three months of this year, the Debt Management Office (DMO) said yesterday.
It said the long-term borrowing would come in five, 10 and 20-year local denominated bonds. The DMO said it would sell within the range of N40 to N60 billion in the bond maturing in 2020 in January and February and N20 to N30 billion of same tenor paper in March.
The debt body will issue within the range of N40 to N60 billion of the 2026 paper in each of the first three months of the year and N40 to N60 billion in a fresh 2036 paper in March. Nigeria said it will borrow about N900 billion locally to finance part of the N2.2 trillion deficits in its 2016 budget.
Analysts said the government’s proposed N6.08 trillion budget for the 2016 fiscal year, has N1.84 trillion deficit financing targeted mainly at infrastructure development to be funded through borrowing.
The DMO is constitutionally empowered to explore local and international funding sources to see effective funding of the budget. The debt body is expected to source the additional N1.84 trillion budget deficit cash for capital expenditure, N984 billion of which would come from local investors and N900 billion from international investors.
The Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the performance of the Nigerian bond market was majorly bearish last week as investors freed up liquidity to meet up with the bond auction.
He said the market condition was also affected by increased mopped up exercise and foreign exchange intervention provisioning of last week. The action prompted the average bond yields to close last week at 10.7 per cent from an average of 9.8 per cent a week ago.
The sell-offs in the market was noticed across all bond tenors on all trading days. The bearish sentiments can be attributable to the decline in liquidity levels given the series of Central Bank of Nigeria (CBN) Open Market Operations (OMO) mop-ups that took place last week and the N136.2 billion worth of Treasury Bills auction that took place last Thursday.
“We expect an increase in average yields as the DMO embarks on its monthly bond auction for January together with further decline in market liquidity if the CBN continues its mop up activities,” he said.
Olakunle Ezun of Treasury & Research Unit, Ecobank Nigeria, explained that the drop in the Brent oil price has raised fundamental questions about naira outlook and viability of the 2016 budget. Oil price has fallen to $33.5/barrel from a high of $63.2/barrel about a year ago, representing a 47 per cent fall in 12 months.
He said global oil prices have fallen sharply over the past 18 months, leading to significant revenue shortfalls in many energy exporting nations, including Nigeria. From 2010 until mid-2014, world oil prices had been fairly stable at around $110/barrel. But since June 2014 prices have more than halved, thereby raising issues about the funding capacity of the fiscal authority.
Ezun said the N6.08 trillion 2016 budget proposal to the joint session of the National Assembly, seeks to stimulate the economy, making it more competitive by focusing on infrastructural development; delivering inclusive growth and prioritising the welfare of Nigerians. But the low oil prices might hinder the successful implementation of the budget.
An economist, Bismark Rewane said the budget focuses on funding infrastructure, which entails the provision of tangible assets, like housing, power (electricity), transport, education, communication, and technology, on which other intangibles can be built. It also seeks to protect the poor with a social safety net including scholarships and food provision in schools.
Tribune with additional report from Nation
