As CBN’s Interventions Target Sustainable Growth

Chika Amanze-Nwachuku writes that beyond striving to ensure exchange rate stability, the Central Bank of Nigeria, through various interventions, is poised to return the Nigerian economy on the path of sustainable growth and development

The Central Bank of Nigeria, apex financial regulator in February, released a new foreign exchange policy to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions.

Unveiling the new initiatives, the CBN Governor Godwin Emefiele said the apex bank would “henceforth be providing direct additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees”.
The CBN said such retail transactions would be settled at a rate not exceeding 20 per cent above the interbank market rate. Also, as part of efforts to boost the availability of FX to all end-users, the CBN directed all banks to open FX retail outlets at major airports as soon as logistics permit.

It also reduced the tenor of its forward sales from the hitherto maximum cycle of 180 days, to no more than 60 days from the date of transaction.
Prior to the CBN’s latest FX measures, the volatility in the Nigerian FX market, following the collapse of oil prices two years ago, was a source of worry as the gap between the inter-bank foreign exchange and parallel market rates, continued to widen at an alarming rate. In fact, the naira at some point, fell to as low as N525/$1 at the black market segment.

Deeply concerned about the very ugly trend and its attendant consequences on the ailing economy, the CBN, under the supervision of Godwin Ifeanyi Emefiele unfolded the new measures to strengthen the value of naira against the US dollar in the overall interest of the economy and Nigerians as a whole.

To live up to its promise, the apex regulator has since February, been pumping money into the forex market, a development that has significantly strengthened naira to closed at N380/$1 at the parallel market last month. It is estimated that the CBN has injected more than US$2 billion in cash and currency forwards since inception of its latest policy in February and last week. This was aside its daily intervention of $1.5 million on the interbank market.

In fact, between February 21, 2017 and last week, the apex bank had made over 11 offers, ranging from $100 million to $500 million per auction in the interbank wholesale market since.

Low exchange rate for invisibles

The highpoint of the of interventions was the lower naira exchange rate for invisibles such as personal travel allowance (PTA), basic travel allowances (BTAs) and medical fees abroad to N360/$1 from N375/$1 previously.
Under the arrangement, the CBN would sell to banks at N357/$1 and banks would in turn sell to buyers at $360 per dollar.

Last week, the CBN sold the sum of US$350 million as wholesale auction, Business Travel Allowance/Personal Travel Allowance (BTA/PTA), and school fees. The bank had also offered $150 million wholesale forwards to banks and $90 million for invisible transactions, in line with its avowed determination to ensure adequate liquidity in the forex market to ease the difficulties faced by Nigerians in accessing forex for these purposes. Besides, the development has eased the foreign currency liquidity pressure faced by banks.

Fuel Importers, Airlines, Manufacturers, Agriculture Sub-Sectors Benefitted
The CBN also last Friday auctioned the sum of US$418 million through retail-Special Secondary Market Intervention Sales (SMIS), at a marginal rate of N310/$.
Okorafor, who revealed this in a statement weekend, stated that the airlines, agriculture, petroleum and raw materials/machineries sub-sectors benefitted from the auction.
Okorafor emphatically stated that the Banker of Last resort, will sustain its intervention through the sale of foreign exchange to all segments of the market.

The CBN spokesman said: “In the weeks ahead the CBN will sustain its intervention through the sale of foreign exchange to all segments of the market – PTA/BTA, Wholesale SMIS, Retail SMIS and the BDC. The Bank will sell short tenured forwards of -30-day maturity to meet demand of manufacturers and all other foreign exchange users.
He added: “These significant injections of foreign exchange into the market should reassure all foreign exchange users of our determination to continue to meet all legitimate FX demand in the market while striving to achieve exchange rate stability in the market.”

Dollar Supply to BDCs
As part of measures to sustain liquidity in the FX market, the CBN also recently increased the amount of dollars to be sold to the Bureau De Change (BDC) segment of the market to $10,000 weekly, from the $8,000 weekly it was previously.
Okorafor said the special intervention of $10,000 for BDCs was meant to meet the increasing requests of low-end customers in the forex.

The CBN also lowered the rate at which dollar inflows from International Money Transfer Operators (IMTOs) are sold to BDC operators to N360/$1, from the N381/$1 it was previously. With this directive, the BDCs were expected to sell the greenback to retail end-users at not more than N362/$1.
On Monday, the CBN had announced special intervention for SMEs. The CBN spokesman, said the Bank has opened a special FX window for SMEs to enable the business operators import eligible finished and semi-finished items not exceeding $20,000 for an enterprise per quarter.

According to him, the special intervention was necessitated by findings that a large number of SMEs were being crowded out of the FX space by large firms. He said, under the special arrangement, enterprises with employee strength of between 10 to 199 and asset base of between N5million to less than N500 million will be offered the opportunity to import eligible items within the approved threshold.

Other Inventions
CBN’s massive interventions in the real sector projects centred around agriculture, micro, small and medium enterprises (MSMEs) and Infrastructure.
These included the N300 billion Real Sector Support Facility (RSSF); the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF); the N213 billion Nigeria Electricity Market Stabilisation Fund; N500 billion Non-Oil Export Stimulation Facility; and the N75 billion Nigeria Incentive Based Risk Sharing for Agricultural Lending (NIRSAL).

The apex regulator, also in September 2015, announced N300billion bailout for some states. The CBN lifeline was one of the three-pronged reliefs designed by the federal government to help financially troubled states meet up their obligations, particularly payment of the backlog of workers’ salaries.

The CBN- initiated Anchor Borrowers’ Programme (ABP) was also part of its efforts to scale down the huge foreign exchange spent by Nigeria on importing food items.
The pilot phase of the programme commenced in Kebbi state and has extended to more states including Kebbi, Sokoto, Niger, Kaduna, Katsina, Jigawa, Kano, Zamfara, Admawa, Plateau, Lagos, Ogun, Cross-Rivers and Ebonyi and Imo.
Under the programme, the funds set aside are given to farmers at single digit interest rate of maximum nine per cent per annum, in line with government’s aspiration to achieve food security.

The Bank was concerned about the huge foreign exchange spent by Nigeria importing food items that could be produced locally. The allocation of foreign exchange to the importation of items such as rice, wheat, milk and fish, among others, had contributed greatly to the depletion of Nigeria’s foreign reserves, especially in the face of low oil revenue occasioned by plummeting oil prices.

Light at the End of the Tunnel
So far things have really started to take positive turn though many are still skeptical about whether these interventions are sustainable and whether they will work miracles of restoring investor confidence and stimulating productive activities, needed to reset economy.

There are noticeable signs that Nigeria’s economy will soon exit the recession. For instance, the latest NBS report showed that inflationary figure for the month of February indicated a moderation to 17.8 per cent year-on-year, from 18.7 per cent in January 2017.

Also, the increased foreign exchange supply by the CBN has resulted in a significant appreciation in the value of the naira against the US dollar. The central bank’s data also showed that the reserves have been experiencing a steady increase despite the sustained intervention by the CBN. The reserves, derived majorly from the proceeds of crude oil earnings climbed by $59 million to $30.366 billion as at April 7.

Following the CBN’s continued intervention in the FX market and its resolve to continue to flood commercial banks with dollars, the banks that hitherto had no FX to meet their obligations have cleared the backlog of legitimate requests for foreign currencies such as basic travel allowances, school fees and medicals. In fact, the banks are reported to be holding excess FX and are now seeking buyers.

Sustainability
Okorafor has expressed optimism that the CBN’s interventions would be sustained, pointing out that with $50 per barrel oil, the reserve will be above $30 billion. He said the CBN will continue with its interventions to substantially ease the FX pressure on visible and invisible needs of customers.

Also, the Chief Executive Officer, Economic Associates, Mr. Ayo Teriba has expressed optimism that the CBN’s interventions on the FX market would be sustained, as the increase in oil production and high oil prices, had boosted the country’s foreign reserve base.

“We are back to a situation where the forex at the disposal of the CBN is likely to go up. The CBN could not intervene in the forex market in 2016 because of low oil production, prices and because foreign reserves were also low.
“Today, oil price is up, reserves have also gone up, the outlook of the oil prices is stable and production in Nigeria is going back to capacity; so it has the capacity to intervene” Teriba said.