•Regulator to unveil new list of BDCs, warns against patronising IFOs
By Uche Usim, Abuja
Against the backdrop of the $3 billion emergency loan secured by the Nigerian National Petroleum Company Limited (NNPCL) from Afreximbank last week to redeem the tumbling naira and stem volatilities around the foreign exchange market, some economic experts have called for the careful utilisation of the money so as to create the needed impacts on the economy as envisaged.
This was even as the noted that the loan creates an erroneous impression of insolvency on the part of the Central Bank of Nigeria (CBN) saying it was an unhealthy signal to foreign investors.
In his submission on the matter, a financial economist and Professor of Capital Market at the Nasarawa State University Keffi, Uche Uwaleke told Daily Sun that some clarity on the loan was necessary.
“If the security for the loan are some barrels of future crude oil production, at what forward contract price was this negotiated? In view of the fact that all proceeds of crude oil sales are paid by into the federation account, this sort of swap transactions has implications for FAAC receipts meant for the three tiers of government”.
“Much as intervention in the forex market by the CBN is desirable, a more cost effective option would have been to use what is left of our external reserves as opposed to taking a loan from Afreximbank or even the IMF. The fact that the $3 billion loan was taken by NNPCL, a company still owned 100per cent by the Federal Government with the Ministries of Finance and Petroleum Resources holding 50per cent share each, makes it more worrisome.
“By implication, the Federal Government that is already saddled with huge debt is borrowing to lend to the CBN, when it should have been the other way round. Ultimately, this new loan contracted by the NNPCL adds to the growing public debt and may have been contracted at non concessionary terms being an emergency loan.”
It’s important that Nigerians, especially the National Assembly are informed about the terms of the loan and the collateral security involved”, he said.
Uwaleke added that the $3 billion loan on the balance sheet of NNPCL will make the company less attractive and possibly jeopardise the ongoing plan to privatise and list it on the Nigerian Stock Exchange.
Also reacting, the Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said Nigeria was currently neck-deep in liquidity crisis at the foreign exchange market, saying that some options were on the table for the country to embrace.
“One option is to approach the IMF for a facility to bridge the gap.
Second option was to seek facilities like the euro bond. Again, if the country has companies or assets that can generate forex, it can leverage them or sell part of the assets or shares. The NNPCL option I think is best given the circumstances. It’s better than going to the IMF with its stringent conditions and laborious processes and we can all see the way the market has responded. We had liquidity issues and declining confidence which fuels so many issues.
“NNPCL has the capacity and credibility to service the loan and that is why Afreximbank obliged.
“The only downside is that accretion to the federal account may be affected because we took a huge chunk up front to stabilize the foreign exchange market but it’s a good deal. There’s no challenge to it.
“Luckily, oil prices are approaching $85/barrel and the government is doing something around insecurity so that we have increased production,” he said.
Meanwhile, the CBN has begun compiling a fresh list of approved Bureau de Change Operators who meet the standards of new guidelines for their operations.
The move is to sanitize the BDC segment of the foreign exchange market and weed out speculators. The CBN currently has 5,691 BDCs on its list but after the restructuring, non-compliant would be delisted.
In a circular dated August 17, 2023, the CBN released a new operational mechanism for BDCs.
The guideline demands that the spread on buying and selling of forex by BDCs should be within an allowable limit of – 2.5 percent to +2.5 percent of the Nigerian Foreign Exchange market window weighted average rate of the previous day.
They were also mandated to render statutory periodic reports which are daily, weekly, monthly, quarterly, and yearly on the Financial Institution Forex Rendition System (FIFX) which has been upgraded to meet individual Operator’s requirements.
The apex bank has also clarified that it has not enacted any new policy actions within the foreign exchange market as stated in some quarters.
In a statement posted on its official X social media handle (formerly known as Twitter), the CBN described the rumors as totally outdated.
It stated that the attached images, which were originally released on February 20th, 2017, should be immediately dismissed.
The CBN’s statement reads: “We wish to draw your attention to the fact that the images being circulated on social media are sourced from an antiquated Press Release dated February 20th, 2017. Kindly ignore them”.
At the weekend, the government began moves to clean up the financial system; with the Financial Services Regulation and Coordinating Committee (FSRCC) and the National Broadcasting Commission clamping down on Illegal Financial Operators (IFOs).
The CBN drew the attention of the public to the worrisome increase in the activities of Illegal Financial Operators (IFOs) which portend grave risk to the public confidence and stability of the Nigerian Financial System.”
“Refrain from dealing with unlicensed or illegal financial operators, who lure and defraud unsuspecting members of the public by offering extraordinary returns on investments as bait”, it said.