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Naira May Rebound This Week With $2.25bn World Bank Loan - INDEPENDENT
LAGOS – There is the possibility that the naira may experience a rebound starting from this week as the Federal Government plans to put into use the $2.25 billion World Bank loan given to Nigeria.
The main purpose of the $2.25 billion loan is for Nigeria to shore up revenue and support economic reforms that have contributed to the worst cost-of-living crisis in many years.
The bank said in a statement that the bulk of the loan — $1.5 billion — will help protect millions who have faced growing poverty since a year ago when President Bola Tinubu came to power and took drastic steps to fix the country’s ailing economy.
The remaining $750 million, the bank said, will support tax reforms and revenue and safeguard oil revenues threatened with limited production caused by chronic theft.
Financial experts believe that this will boost the dollar supply and prop up the ailing naira.
Nigeria’s naira, which is down by around 70 per cent since last year, depreciated further against the dollar on Friday even after the country announced it had secured approval for the loan.
Those who spoke to Daily Independent projected a comeback this week, as the World Bank inflow provides the CBN with firepower to bolster the currency, which has been declining recently.
The government will however need to devise a more long-term strategy to unlock consistent dollar inflows to ensure stability of the currency and economy.
Data from FMDQ indicated that the local currency fell by 0.44 per cent to N1,482.72/$ on Friday from N1,476.24/$ the previous day. The black market rate depreciated by 0.34 per cent to N1,485/$ from N1,480/$ on Thursday.
Wale Edun, minister of finance and coordinating minister of the economy last week announced the approval of two major financial support packages by the World Bank.
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The funding will be received via two major development projects. The first project is the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing, which is set to receive $1.5 billion.
The second project, NG Accel Reforms Programme-for-Results, has proposed funding of $750 milerating Resource Mobilization lion.
Cyril Ampka, an economist, said that the $2.25 billion loan, which attracts one per cent interest, is a short-term strategy that will improve liquidity position.
He said, “If all things are equal we expect the appreciation of the naira but there are other factors that are at play in the market.
“Currently, the economy is facing a supply deficit of FX which is piling pressure on the naira.
“To address naira volatility long-term, there’s a need to look at more structural kinds of strategies, like enhancing competitiveness to boost non-oil exports and also developing local capacity such that we are sufficient in producing key products and won’t need to import critical inputs which drain FX.”
The naira, which has been volatile since it was floated in June last year, is still in price discovery mode. It was devalued by over 190 per cent to N1470/$ currently from N460/$ June last year.
Earlier this year, dollar inflows into Nigeria surged due to the CBN’s action to lure foreign portfolio investors with higher interest rates on government debt and an undervalued naira.
Stephen Iloba, an Abuja-based financial analyst believe that the loan will boost the economy if it is rightly channelled.
His words, “The Federal Government and the CBN are being presented with another lifeline with this loan and I am hopeful it will impact the foreign exchange market positively.
“Though we may not see the kind of accretion we saw early this year in the foreign exchange market, we are likely going to see a good improvement.
Significantly, the government said it was also taking steps to boost foreign investment inflows which fell by 26.7 per cent from $5.3 billion in 2022 to $3.9 billion in 2023, according to the Nigerian Economic Summit Group think tank.
