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By Chinwendu Obienyi
A recent announcement by the Federal Government that Nigeria has secured a $3 billion emergency crude oil repayment from the African Export-Import Bank (Afreximbank), has been described by some economic analysts as too insignificantly to support the Naira especially if the amount is to be delivered in tranches.
According to analysts at Cordros Research, Nigeria might need comprehensive economic reform and targeted policies in addition to financial support.
The Nigerian National Petroleum Company Limited (NNPCL) had, last month, announced that it had secured a $3 billion emergency crude oil repayment loan from the Afreximbank, expecting to receive an upfront cash loan against proceeds from a limited amount of future crude oil production. Furthermore, it was widely reported that the bank is actively engaging some oil traders, gauging their interests in providing the necessary funding for the $3 billion emergency cash-for-crude oil repayment loan to the company.
However, while many analysts stated that the $3 billion is undoubtedly a substantial sum, they noted that its effectiveness in supporting the Naira depends on several factors, including the country’s economic conditions, the rate of fund disbursement and how the funds are utilized.
They also added that while the deal is still in progress, once completed, the loan may serve as a favourable short-term fix in providing near-term FX supply to support the FX market and stabilise the local currency.
Nigeria, being one of Africa’s largest economies, has significant financial needs. If the economic challenges are deep-seated and pervasive, $3 billion might be insufficient to address all the underlying issues causing instability in the currency.
,“Nonetheless, we acknowledge that the amount is not enough to significantly support the local currency, more so that the funds will come in tranches. Thus, if not adequately managed with other suggested near-term measures (such as increased crude oil production, higher interest rates and additional funding support from third parties or multilateral institutions) FX pressures may likely build up again, leading to another round of local currency depreciation”.They said
