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IMF reveals CBN is ‘taking steps’ to float the Naira

Nigeria may need more than $3.4 billion from the IMF and bond buyers making it inevitable that the currency will be floated

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The International Monetary Fund (IMF) announced it has approved Nigeria’s request for “emergency financial assistance” of $3.4 billion under its Rapid Financing Instrument (RFI). This is the first time in history that Nigeria will be obtaining a loan from the IMF.

Nigeria had approached the IMF over a month ago seeking financial assistance to help the current meet its balance of payment needs. The IMF also recently approved a loan of $ 1billion for Ghana to help fight the Covid-19 virus.

Economic Recession

The Nigerian Economy faces a double whammy from the falling crude oil prices and the Covid-19 pandemic. As a result, most analysts have predicted a slip back into recession and one that could top the 2016 recession that lasted for almost a year. This time, the fall in oil prices has had an immediate impact on government revenues while the COVID-19 pandemic has hit hard on the private sector due to the lockdowns.

The IMF recognizes this risk and has made it clear in some of its recent pronouncements. Earlier in the month, it projected that Nigeria was heading to a recession, its worst recession in three decades, as it expects the nation’s economy to recede by 3.4% in 2020. This realization has led to the approval of the $3.4 billion loans.

In a press release issued by the IMF, it explained that “the near-term economic impact of COVID-19 is expected to be severe, while already high downside risks have increased.  Even before the COVID-19 outbreak, Nigeria’s economy was facing headwinds from rising external vulnerabilities and falling per capita GDP levels. The pandemic—along with the sharp fall in oil prices—has magnified the vulnerabilities, leading to a historic decline in growth and large financing needs” buttressing the urgent need for a loan for Nigeria.

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The Deputy Managing Director and Acting Chair of the IMF, Mr. Mitsuhiro Furusawa, also issued the following statement:

“The COVID-19 outbreak—magnified by the sharp fall in international oil prices and reduced global demand for oil products—is severely impacting economic activity in Nigeria. These shocks have created large external and financing needs for 2020. Additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country’s financing.” 

Financial Assitance with strings

However, what we found more interesting in the comment made by Mr. Farusawa was the inference that Nigeria was taking steps towards floating the currency (flexible exchange rate as they call it) and unifying the exchange rate.

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“The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited.

This statement appears to confirm that there are moves by the central bank to float the naira and unify the exchange rate across all markets. This move is not a surprise considering that IMF loans typically attract strings such as hard policy reforms such as devaluation, floating currency, and removal of subsidies.

This is perhaps why Nigeria hasn’t obtained loans from the IMF in years allowing multiple governments to continue with economic policies that require less accountability and scrutiny but big on subsidies and capital controls. The institution is known for asking for strings when it comes to the aid of ailing countries.

Nairametrics research understands that the current IMF loan may not have come with strings considering the speed at which it was approved amidst the Covid-19 situation. However, Nigeria may need more than $3.4 billion from the IMF and bond buyers making it inevitable that the currency will be floated.

End of fixed exchange rate?

Recall, the CBN in March devalued (adjusted) the naira from N305/$1 to N360/$1 in the official market where the government converts forex from crude in exchange for Naira from the CBN.

It then moved the rate at which it sells forex in the Bureau De Change to N380/$1 from N360/$1. Since then, transaction volumes have crashed in the IFEX market where forex is traded as investors react to the Covid-19 lock-down.

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The black market where the exchange rate is also sold crashed to as high as N460/$1 this week as dollar scarcity persisted in the market.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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Coronavirus

COVID-19 Update in Nigeria

On the 25th of September 2020, 213 new confirmed cases and 2 deaths were recorded in Nigeria

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The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to record increases as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 58,062 confirmed cases.

On the 25th of September 2020, 213 new confirmed cases and 2 deaths were recorded in Nigeria, having carried out a total daily test of 10,526 samples across the country.

To date, 58,062 cases have been confirmed, 49,606 cases have been discharged and 1,103 deaths have been recorded in 36 states and the Federal Capital Territory. A total of 494,577  tests have been carried out as of September 25th, 2020 compared to 484,051 tests a day earlier.

COVID-19 Case Updates- 25th September 2020,

  • Total Number of Cases – 58,062
  • Total Number Discharged – 49,606
  • Total Deaths – 1,103
  • Total Tests Carried out – 494,577

According to the NCDC, the 213 new cases are reported from 17 states- Lagos (51), Plateau (51), FCT (29), Rivers (18), Ondo (12), Oyo (9), Osun (8), Gombe (7), Ogun (7), Kaduna (5), Enugu (4), Edo (3), Jigawa (3), Kano (3), Benue (1), Delta (1), Sokoto (1).

Meanwhile, the latest numbers bring Lagos state total confirmed cases to 19,174, followed by Abuja (5,644), Plateau (3,373), Oyo (3,248), Edo (2,620), Kaduna (2,389), Rivers (2,305), Delta (1,801), Ogun (1,796), Kano (1,737), Ondo (1,620), Enugu (1,289), Ebonyi (1,038), Kwara (1,028), Abia (881), Gombe (864). Katsina (848), Osun (826),  Borno (741), and Bauchi (692).

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Imo State has recorded 566 cases, Benue (481), Nasarawa (449), Bayelsa (397),  Jigawa (325), Ekiti (317), Akwa Ibom (288), Niger (259), Adamawa (237), Anambra (234), Sokoto (162), Taraba (95), Kebbi (93), Cross River (87), Zamfara (78), Yobe (75), while Kogi state has recorded 5 cases only.

READ ALSO: COVID-19: Western diplomats warn of disease explosion, poor handling by government

Lock Down and Curfew

In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.

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The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.

On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020. Also, on Monday 27th July 2020, the federal government extended the second phase of eased lockdown by an additional one week.

On Thursday, 6th August 2020 the federal government through the secretary to the Government of the Federation (SGF) and Chairman of the Presidential Task Force (PTF) on COVID-19 announced the extension of the second phase of eased lockdown by another four (4) weeks.

READ ALSO: Bill Gates says Trump’s WHO funding suspension is dangerous

 

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Coronavirus

Lagos launches N5 billion support fund for 2,000 low-cost private schools

The Governor said the facility will benefit low-cost schools with amounts ranging from N500,000 to N5 million.

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Lagos State government has launched a N5billion support fund to help reduce the impact of Coronavirus pandemic on low-cost private schools in the state.

This was disclosed by the Governor of the state, Babajide Sanwo-Olu via his Twitter handle on Friday.

According to him, the educational sector is one of those severely impacted by the pandemic, with schools and vocational learning-centres shut since March.

He said, “With access to funding for privately owned schools and vocational training centres in the state, we are confident that this programme, under the partnership between First Bank Nigeria and Lagos State Education Trust Fund (LSETF) will help accelerate a sustainable return to learning and skills acquisition.”

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He explained that the facility will benefit 2,000 low-cost schools with amounts ranging from N500,000 to N5 million.

“As a responsible Government, we are obligated to provide interventions that would enable learners in schools study in line with the new normal,” the Governor Sanwo-Olu added.

The Chief Executive Officer, First Bank Nigeria, Dr Adesola Adeduntan, said “With this partnership, we are sure that registered educational institutions in Lagos State will have access to funds at subsidised interest rates to meet their needs as they reopen at this auspicious time.”

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Business News

Paga Group relocates to the UK

Oviosu announced that he is very excited about moving to and working with the UK government.

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Paga records over $2 billion worth of transactions in 2019 , Paga acquires Ethiopian-based startup, Apposit, announces Paga subsidiaries

Paga Group has redomiciled from Mauritius to the United Kingdom (UK). The group is the holding company for its operations in Nigeria, México, Ethiopia, and the UK.

This was disclosed by the Chief Executive Officer and founder, Paga, Tayo Oviosu on Friday.

Why it matters: The company took the decision due to bureaucratic challenges it faced last year.

He said, “The laws and courts of Mauritius are not very fast-moving, and the rules are difficult. I’ve had one court case that was eventually thrown out after a year.

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“In the UK it would have been thrown out immediately, and the person would have had to pay us for our lawyer fees.

“Basically, not an easy place to do business. It is more painful than useful. I say stick to good ol’ America or UK or Netherlands or Luxemburg. Where you know there are professionals, and the legal system works.”

Oviosu said he is very excited about the move, looks forward to working with the UK government to promote trade with the UK.

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The Paga Group has raised $34.7 million in funding so far, according to Crunchbase.

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