By Chinwendu Obienyi
Nigeria’s current debt profile estimated at N87.4 trillion and prevailing FX scarcity amongst others, are raising concerns that investor confidence may be hurt amid shrinking FX inflows in the country.
PwC in its monthly economic report seen by Daily Sun on Wednesday, said that Nigeria’s economic outlook looks bleak unless the Federal Government and the Central Bank can boost the confidence of investors by focusing on policies that promote economic stability and encourage FX inflows to mitigate the potential negative impacts.
The Debt Management Office (DMO) in September, put Nigeria’s total public debt at N87.38 trillion at the end of the second quarter of 2023. The figure represents an increase of 75.29 per cent or N37.53 trillion compared to N49.85t trillion recorded at the end of March 2023.
This increase, analysts at PwC said, led to lowering of credit ratings and may further lead to increase in the cost of international funds, increasing the demand pressure on forex to meet future FX debt service obligations.
The agency’s monthly economic note revealed that the low credit ratings was evident in the decline in capital importation from $24 billion in 2018 to $5.3 billion in 2022 and added that the increase in global Central Bank’s policy rate may lead to capital reallocation away from the country’s financial market to other markets with more attractive yields on investment and may reduce FX flows to the economy.
It further noted that the decline in Nigeria’s MSCI index indicates capital reallocation to other economies and might extend a bit further. It revealed that remittance flows to low and middle-income countries are expected to remain resilient but slow to $656 billion (as against 2022: $647 billion), which represents growth of 1.4 per cent by 2023 compared to 8 per cent growth in 2022.
It said, “The slow growth is due to the softening of economic activity in remittance source countries, limiting employment and wage gains for migrants.
Remittance flows to Sub-Saharan Africa in 2022 was largely driven by strong remittance growth in Tanzania (25 per cent), Rwanda (21 per cent), Uganda (17 per cent), Ghana (12 per cent), and Kenya (8.5 per cent). Though remittances to Nigeria accounted for 38 per cent of the total flows to the region, it increased by only 3.3 per cent to $20.1 billion”.
Economic analysts who responded to the report, noted that the weak global economic growth may negatively impact remittance flows into Nigeria.
Remittances are a significant source of FX for many developing economies and a decline in remittances could reduce the overall FX flows into the country, affecting its foreign exchange reserves. Already, the country’s exchange rate is under pressure despite reforms taken by the FG and the Central Bank of Nigeria (CBN). The country’s local currency has been on a losing streak both at the official and parallel market rate, depreciating by 10 per cent in 2 days.
At the close of transactions yesterday, the dollar, which opened at N848.12/$, appreciated by 7.3 per cent to close at N790.68/$1 at the Nigerian Foreign Exchange Market (NFEM).
On the other hand, the dollar climbed from N1,075/$1 to N1,100/$1, sparking concerns amongst the masses. Reacting to the development, the report noted that more exchange-rate flexibility is associated with greater monetary-policy autonomy,
so there is some rounding of that corner of the policy trilemma; but temporary, narrowly targeted capital controls do not enable a country with a fixed exchange rate to have greater monetary-policy autonomy than it has under full capital mobility.
It added that the FG, CBN will have to embark on measures to address fiscal deficit, diversification of the economy to reduce reliance on oil exports, and policies to attract foreign investments and boost investor confidence.