In light of the rampaging impact of the COVID-19 pandemic on global supply chains, demand shocks and consequently impact on liquidity and growth prospects, the Central Bank of Nigeria (CBN) announced its initial policy response to the pandemic.
This comes ahead of its Monetary Policy meeting on March 23 and 24. Below are highlights of the bank’s communique:
- All CBN intervention facilities are hereby granted a further moratorium of one year on all principal repayments effective March 1, 2020.
- Interest rates on all applicable CBN intervention facilities are hereby reduced from 9.0% to 5.0% for 1 year effective March 1, 2020.
- The CBN establishes a N50 billion targeted credit facility through the NIRSAL microfinance bank for households and SMEs vulnerable to the COVID-19 pandemic.
- The CBN hereby opens intervention facilities and loans to pharmaceutical companies intending to expand operations and set up drug manufacturing plants.
- The CBN hereby grants Deposit Money Banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of COVID-19.
- Strengthening of the CBN’s LDR policy to support credit growth. The CBN would further support industry funding levels to maintain DMB’s capacity to direct credit to individuals, households and businesses.
We recognize that the COVID-19 pandemic has impacted global supply chains and created demand shocks. Consequently, this has impacted revenue and created cashflow constraints for companies vulnerable to the spillovers of the outbreak.
Granted some Nigerian companies, which rely on supplies from China, may have met with tough times, we believe the most serious negative impact of the outbreak on the Nigerian economy stems from weaker oil prices and pressured external conditions which have led to rising FPI outflows and consequently exchange rate panic. These pressures have significantly raised the risk of an economic slowdown and a possible recession in the medium term.
In light of this, we don’t think the CBN’s policy response addresses the key risks faced by the Nigerian economy from the COVID-19 outbreak. The policies highlighted above are geared towards freeing up more liquidity into the financial system and relaxing debt covenants for companies rather than tackling exchange rate concerns.
We note the CBN has earlier stated it believed market fundamentals do not support a devaluation. Thus, we do not expect any major reaction from the apex bank on that front.
Nevertheless, we think the policies will be beneficial for companies who currently enjoy CBN intervention loans. With an extra 1-year moratorium and lower interest rate (from 9.0% to 5.0%), these companies would enjoy improved liquidity. In addition, the CBN’s regulatory forbearance on loan restructuring would further support credit quality and prevent a credit crunch in the event of a protracted low oil price environment.
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Brent crude surges past $36, as major oil producers stick to their pledges on oil output cuts
Note that crude oil prices are still down by 45% since the beginning of 2020, a situation that had forced oil-dependent Nigeria to revise/readjust her 2020 national budget, as Nairametrics reported.
Brent crude gained on Tuesday’s London trading session, upon clear signs that major oil producers are sticking to commitments to reduce crude supply, even as more automobiles get back on the road following the lifting of COVID-19 lockdowns around the world.
Brent crude futures gained about 0.7%, to trade at $36.25, 6.50 am Nigerian time adding to a 1.1% gain on Monday in thin holiday trading. Commenting on this, Will Sungchil Yun, a commodities analyst at VI Investment Corp., said the following to Bloomberg news from Seoul:
“The market is starting to witness the effect of output cuts along with a reduction in inventories, while the global economy is on its path to recovery. Still, there’s caution with the absence of a cure for the pandemic as well as the possibility of a second wave of infections.”
The energy market’s bullish run was boosted by comments from Russia which reported that its oil output had nearly plunged to its target of 8.5 million barrels per day for May and June. Daniel Hynes, a senior commodity strategist at Australia and New Zealand Banking Group, told CNBC that “there’s definitely a feeling those cuts have come through as well as you could expect. “With economies restarting, the focus definitely is on the improvement in the fundamentals, rather than what seemed like a complete collapse in demand only a few weeks ago.”
Meanwhile, Russia’s energy minister, Alexander Novak, explained that a surge in fuel demand should help reduce the present global surplus of around 7-12 million barrels per day by June or July.
Early next month, OPEC+ members are expected to meet to discuss whether to maintain their supply cuts which are intended at shoring prices. Note that crude oil prices are still down by 45% since the beginning of 2020, a situation that had forced oil-dependent Nigeria to revise/readjust her 2020 national budget, as Nairametrics reported.
Africa day 2020: Buhari urges economic groups, CSOs and private sectors to drive peace for economic development
President Muhammadu Buhari has urged economic groups, CSOs and private sectors in Africa to strengthen collaborative efforts of the AU.
As Nigeria continues to battle the rising insecurity fuelled by the COVID-19 pandemic, President Muhammadu Buhari has urged regional economic groups, civil society organisations and the private sector in Africa to strengthen collaborative efforts among member-countries of the African Union.
He added that stakeholders must take full ownership of the theme of this year’s celebration to ‘silence the guns’, and allow for economic development in the continent.
”Peace, security, unity, and harmony are prerequisites for development in Africa,” Buhari said, stressing the need for all economic groups to work together to achieve the peace required for economic growth.
This was part of the President’s message to African leaders to mark the celebration of the ”Africa Day 2020,” by the African Union Commission and the World Health Organization (WHO).
President Buhari said Africa has given the world a new hope by choosing the theme ''Silencing the Guns in the context of the COVID-19'' for this year’s Africa Day.
— Garba Shehu (@GarShehu) May 25, 2020
He noted that the selected theme for the year 2020, ”Silencing the Guns in the context of the COVID-19” provides a ray of hope in the seemingly bleak situation caused by the pandemic across the globe.
He stressed the need for African leaders to ensure that every effort is made to ensure the success of silencing the guns in the continent, emphasizing the need to sensitize Africans about the inseparable connection between peace and development.
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About the Africa Day
Africa Day is observed annually on 25 May, in commemoration of the founding of the Organization of African Unity (OAU), which was founded on 25 May 1963 in Addis Ababa, Ethiopia and is now known as the African Union.
Nigeria’s external reserves up by 7% in 21 days, currency speculators to lose over N10 billion
It should be noted that Nigeria’s external reserves went on a downward slide last year, having lost $11.75 billion within a space of 10 months.
The continuous increase in Nigeria’s external reserves appears to have been sustained as it recorded a third consecutive week of growth at the end of last week. Available data from the Central Bank of Nigeria (CBN) show that the country’s external reserve had risen to about $35.77 billion as of May 21, 2020.
Despite the volatility of the foreign exchange market due to decline in crude oil export earnings, the external reserves increased sharply by almost $1 billion in just 9 days, rising from the $34.78 billion that it recorded on May 12, 2020, to about $35.77 billion that it ended with on May 21, 2020.
Nigeria’s external reserves have been on a steady increase since April 29, 2020, when it stood at $33.42 billion. This represents an increase of about $2.35 billion or 7% in 21 days.
It should be noted that Nigeria’s external reserves went on a downward slide last year, after hitting a peak of $45.17 billion on June 11, 2019, thereby losing $11.75 billion within a space of 10 months.
The recent gradual increase of the external reserves and improved liquidity in the foreign exchange market, thanks to the CBN, have helped to strengthen the naira at the Investors and Exporters (I&E) window. This was especially the case last week when the naira exchanged at N385.94 to a dollar from N386 to a dollar.
Note that the improved liquidity in the foreign exchange market and the continuous increase in the country’s external reserves were also made possible by the recent disbursement of $3.4 billion emergency facility by the International Monetary Fund (IMF) to the CBN on May 6, 2020. The money was intended to help Nigeria mitigate the impact of the coronavirus pandemic.
Recall that the naira has been under pressure against other major currencies, particularly the dollar, even as currency speculators have been making a lot of demands for dollars so as to make profits on future sales.
Just last week, the CBN Governor, Godwin Emefiele, had to warn speculators and businesses to stop patronizing the parallel market operators. According to him, the rates they are buying dollar now are unrealistic and possibilities abound that they will lose their money if they continue to do so. It has been estimated that speculators could incur over N10 billion losses.
In the meantime, Governor Emefiele had promised more liquidity in the forex market, assuring that all genuine dollar demands by businesses and individuals will be met. This is coming against the backdrop of the planned resumption of dollar sales to the Bureau De Change Operators (BDC) by the CBN after almost 6 weeks that was suspended due to the lockdown occasioned by the coronavirus pandemic. The President of Association of Bureau De Change Operators (ABCON), Aminu Gwadebe, had pointed out that the return of the BDCs to the forex market will help chase away speculators, curb rising inflation, boost productivity and employment, enhance price discovery, enhance market transparency and competitiveness.