$2.25bn Loan: Afreximbank, UBA, NNPC’s Intervention to Boost FX Liquidity half bread better than none
Analysts have hailed African Export-Import Bank (Afreximbank)’s release of $2.25 billion out of the $3.3 billion foreign exchange (FX) support facility to ameliorate the acute liquidity shortage in the country, which had negatively impacted investors’ confidence.
Afreximbank is acting as the Mandated Lead Arranger along with United Bank for Africa (UBA) as the Local Arranger.
Both closed on a $3.3 billion liquidity support for Nigeria through a structured financing arrangement with NNPC Limited on December 29, 2023.
THISDAY gathered that the transaction, which released $2.25 billion as the first tranche into the nation’s coffers, is expected to ease the FX illiquidity in the country, while the balance is expected to come in January 2024.
UBA is also acting as the Onshore Depository Bank for the transaction.
Other participants in the deal include Gunvor, Sahara Energy and other major oil traders that are to join the parties.
The transaction is in line with the Renewed Hope Agenda of President Bola Ahmed Tinubu’s commitment to stabilize the FX market and ease inflationary trends that has beleaguered the Nigerian economy since the administration took over.
Other developments that will liquefy the FX market are also in the works as leading domestic and African-focused entities develop solutions towards resolving economic issues in the country.
Analysts, who spoke with THISDAY on the development, welcomed the initiative and the banks to support the economy in times of need.
The Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the intervention will help to fund the budget deficit, as well as assuage FX concerns.
He said: “We have a budget deficit, which can only be funded by borrowing or selling government assets or both.
“The other fundamentals that could increase our revenue base have been stretched ambitiously.
“This gives the government no other option but to continue to borrow.”
Ekechukwu, however, noted that: “Although the $2.25 billion loan will bring FX respite in the short run, it is not likely to sustain the FX market for more than one month.
“So, we expect the exchange rate to drop marginally with such injections, speculations, and other uses will, however, quickly drain the market of the available FX.”
Also, the Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said given the severe liquidity challenge currently experienced in the Nigerian Autonomous Foreign Exchange Market (NAFEM), any forex inflow is welcomed.
He said: “It’s a case of half bread is better than none.”
On his part, the Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the Afreximbank loan would ease the pressure on the naira in the interim while other robust measures to be taken to increase FX revenue in the coming months will further help the resolve of FX change the country is facing.
He said: “The Dangote and Port Harcourt refineries coming on stream in January will help retain the much needed FX in the system, while other government initiatives will bring in foreign investors which will start yielding fruits from Q1, 2024.”
also borrows from Afriexim
The Federal Government of Nigeria tapped into the Central Bank of Nigeria (CBN) for a substantial N2.94 trillion through Ways and Means Advances between July and December 2023.
Despite an earlier restructuring in June 2023 that trimmed down the Federal Government’s debt to the CBN via Ways and Means Advances to N4.36 trillion, a recent request from President Bola Tinubu to the Senate suggests an urgent need for approval to securitize the outstanding balance, potentially ballooning to N7.3 trillion.
This implies that over six months, the Federal Government may have effectively procured N2.94 trillion from the CBN, raising eyebrows amid the controversies surrounding this financing avenue.
Preceding the initial restructuring in June, the loan swelled by a staggering N3.42 trillion in five months, surging from N23.53 trillion in December 2022 to N26.95 trillion in May 2023.
This paints a picture of the Federal Government potentially securing approximately N6.36 trillion from the CBN through Ways and Means Advances throughout the entirety of 2023.