Foreign Borrowing Essential to Support Naira and Clear CBN Debts, According to Economist Intelligence Unit
The Economist Intelligence Unit (EIU) has emphasized the urgent need for foreign borrowing to support the Central Bank of Nigeria (CBN) in stabilizing the naira and settling its outstanding debts. In its recent Country Report on Nigeria, the EIU highlighted the CBN’s liquidity challenges, pointing out the necessity of foreign borrowing to rebuild the CBN’s reserves, address unmet foreign exchange orders, and restore market confidence.
The report underscored the volatile nature of the naira in the current economic climate, warning of potential regulatory uncertainties that could impact businesses, especially those holding foreign currency. It noted that despite Nigeria’s foreign reserves totaling $33 billion, a significant portion (estimated at nearly $20 billion) is tied up in derivative deals, limiting the CBN’s ability to intervene effectively in the foreign exchange market.
The EIU also highlighted Nigeria’s recent borrowing activities, including a $3.3 billion loan secured from the African Export-Import Bank in January, backed by oil revenue. The report indicated that Nigeria is seeking additional financing from the World Bank and other sources to bolster its foreign exchange reserves and stabilize the naira.
Moreover, the EIU noted the return of fuel subsidy in Nigeria, which has incentivized the Federal Government to seek financing from the CBN. It mentioned the National Assembly’s approval of the securitization of the outstanding debit balance of N7.3 trillion of the ways and means advance in the consolidated revenue fund of the Federal Government, highlighting the government’s reliance on CBN financing to cover fiscal costs.
Despite these challenges, the EIU revised its 2024 economic growth forecast for Nigeria from 2.2% to 2.5%, citing increased crude oil output and earlier-than-expected production from the Dangote refinery as factors contributing to the revised outlook. However, the report cautioned that deficit monetization and high inflation could further weaken the naira.
In conclusion, the EIU stressed the importance of foreign borrowing for Nigeria to address its liquidity challenges, stabilize the naira, and restore confidence in the economy.
