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What Nigeria’s Central Bank says would happen as first auction of Chinese Yuan holds

The Central Bank of Nigeria (CBN) on Friday sold Chinese Yuan for the first time through an auction-based system designed for Chinese Yuan foreign exchange window with the People’s Republic of China (PBoC)

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The Central Bank of Nigeria (CBN) on Friday sold Chinese Yuan for the first time through an auction-based system designed for Chinese Yuan foreign exchange window with the People’s Republic of China (PBoC).

The CBN and PBoC had signed a three-year renewable bilateral currency swap deal worth about N720 billion or 15 billion Renminbi to facilitate trade between Nigeria and China and ensure stability in the foreign exchange market, among others.

Earlier this month, CBN acting Director of Corporate Communications, Isaac Okoroafor, while speaking at a Town hall meeting to enlighten stakeholders on the agreement between the two apex banks in Lagos, said the idea behind the agreement was to ease the pressure on the nation’s foreign exchange reserves which was occasioned by the high demands of U.S dollar for transactions.

Read Also: Banks reluctant to lend in Ghana. Why it matters

“This is will help us build our reserves to give confidence to investors that we have the arsenal to maintain the international value of the Naira,” he said.

China is Nigeria’s biggest trading partner after the U.S., with volumes between the two totaling $9.2 billion in 2017, according to data compiled by Bloomberg. Nigeria runs a deficit, importing $7.6 billion of goods including textiles and machinery from China and exporting just $1.6 billion, mainly oil and gas.

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Somalia secures $4.5bn debt relief from lenders

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After a decade-long process of negotiations and reforms with creditors, Somalia has finally secured a $4.5 billion debt write-off from global lenders as the enhanced Heavily Indebted Poor Countries (HIPC) Initiative has spared the nation from repaying its debt.

 

The World Bank reports that the country’s debt has significantly decreased from a peak of $5.2 billion to $600 million as a result of the action taken by multilateral and bilateral lenders, including the International Monetary Fund (IMF).

Commercial creditors have contributed $3 billion towards the debt relief, with multilateral creditors contributing $573.1 million, the World Bank’s International Development Association contributing $448.5 million, the IMF contributing $343.2 million, and the African Development Fund contributing $131 million.

Following the Bretton Woods institutions’y boards’ approval process, a historic announcement regarding Somalia’s debt forgiveness is scheduled to take place in Washington DC on December 13.

HIPC completion points were reached by 37 nations, with Somalia following suit after Zimbabwe and Sudan were left behind. Under the leadership of the current president, Hassan Sheikh Mohamud, Somalia began holding HIPC talks ten years ago, and the nation has continued on the reform path despite political obstacles.

Kristina Svensson, the country manager for Somalia at the World Bank, praised Mogadishu for its “remarkable” commitment to reform last week.

“There have been a lot of political challenges within Somalia, but this thing (principles of HIPC), has held it quite high,” she said.

“This is satisfactory for them (Somalia) to achieve debt relief,” said Ms. Svensson. “Both the World Bank and IMF as well as other international partners, have been essential to providing technical assistance to support the achievement of these triggers.”

Over the past few weeks, Somalia has achieved huge milestones in its efforts towards socioeconomic and political liberation. It recently joined regional bloc, East Africa Community (EAC), as it seeks strategic partnerships with neighbours.

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IMF advises Nigeria’s central bank to raise Monetary Policy Rate

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The International Monetary Fund (IMF) has urged Nigeria’s central bank (CBN) to further hike Monetary Policy Rate (MPR).

The IMF Director of Communications, Ms. Julie Kozack, in Washington DC, United States of America,
on Saturday stressing that the liquidity mop-up being undertaken by the CBN was already addressing the high inflationary rate of over 27%, but the rate must be further adjusted at its next Monetary Policy Committee (MPC) meeting.

The IMF chief also commended recent policy actions on the removal of fuel subsidy and the unification of exchange rates by the Nigerian government.

Nigeria’s short-term interest rate was reported at 17.67 % pa in Oct 2023, compared with 8.67 % pa in the previous month. The data reached an all-time high of 22.95 % pa in Mar 2012 and a record low of 0.36 % pa in Nov 2020.

In her response to questions on Nigeria, she noted that “President Tinubu has implemented two bold and important reforms shortly after taking office.

“The first is on fuel subsidies. Nigeria’s fuel subsidies were costly, especially for the budget, and not well targeted to provide relief for vulnerable households, and so this was rectified. And the second was unifying of the official exchange rate and that removed long standing distortions of the multiple exchange rate system.

“You asked a specific question on inflation. Inflation in Nigeria is running very high. It reached over 27 percent in October, that is the year-on-year number.

“The Central bank, under its new leadership, has started to withdraw excess liquidity that was in the system and contributing to high inflation.

“The next Monetary Policy Committee meeting should further raise policy interest rate. So, the Central bank is taking action to try to address the high inflation problem. As we mentioned in our Article IV Consultation, which was held in February of 2023, raising revenue from the very current low revenue to GDP ratio of 9 percent is essential to create fiscal space for social and development spending. 9 percent of GDP is a very low revenue to GDP ratio, and it is really not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs.

”The 2024 budget aims to reduce the fiscal deficit while also creating space for these priority spendings, both on the social side and also on the development side.”

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