DMO Says ‘System Issues’ Delaying Coupon Payment on Savings Bond

*CBN clarifies 2024-2025 policy guidelines, withdraws Document

*Naira, Angolan Kwanza among world’s worst-performing currencies

Emmanuel Addeh and James Emejo in Abuja with agency report

The Debt Management Office (DMO) has failed to pay coupons on two savings bonds on time, blaming the delay — the second in two months — on system and processing issues.
The nation was due to pay the first coupon on two-and-three-year debt it sold in June on September 12, according to investors. Nigeria raised 4.2 billion naira ($2.56 million) from the sales, according to Bloomberg.
DMO’s Director-General, Patience Oniha, attributed the delay to system and process issues that are “being addressed.”
“I expect an outcome today,” she said in a response to Bloomberg yesterday.

Subscribers to other savings bonds said there was a week’s delay in coupon payments due in August, the first time they experienced a hold-up since the introduction of the instruments seven years ago.
The delayed payments may raise concerns that the government is coming under pressure from its rising debt burden.
Debt-service payments of N2.3 trillion in the first three months to March were almost twice the revenue of N1.4 trillion in the same period, according to monthly fiscal accounts published on the government’s open treasury website.

The Debt Management Office sold the notes that were due to pay coupons on September 12 at 17.4 per cent for the two-year and 18.4 per cent for the three-year from June 3 to 7, according to a statement on the debt agency’s website. Coupon payments should take place quarterly on the 12th day of September, December, March and June, it said.

Africa’s most populous nation introduced the savings bond in 2017 to diversify sources of borrowing and also allow retail investors to earn income by investing in government papers.
In the meantime, the Central Bank of Nigeria (CBN) yesterday said there were media misrepresentation of its biennial publication on Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for Fiscal Years 2024 – 2025 (Monetary Policy Circular No. 45).
In response, the central bank said it has decided to temporarily withdraw the document to minimise risk of any further misrepresentation.

The circular was published on September 17, 2024, and widely reported in the media.
In a statement, the CBN stated, “Some recent media publications referencing aspects of the Guidelines refer to policy positions of the Bank issued before 31st December 2023, which have changed in the light of revisions and updates in 2024.  

“One example is the Cyber Security Levy, which was suspended in May 2024, superseding the circular reported in the Guidelines.
“Certain technical aspects of the guidelines have been widely misreported and misrepresented. For example, reports have mistakenly sought to link the fuel subsidy removal to external reserves.
“Such reports essentially missed the analytical basis for the original statement, which was intended to observe a potential risk that was to be mitigated by policy.”

The apex bank further noted that “More recently, policies of the bank around the Naira exchange rate and those of the fiscal authorities have positively altered the outlook of the subject in question.”
The CBN further advised that the guidelines must primarily be viewed as a record of policies, circulars and directives issued by the bank up to the end of 2023.  

“They are not new directives and should not be reported as such.

“The bank will continue to provide clear monetary policy direction and advice for the overall good of the economy. We urge all stakeholders to seek clarification of information about the Bank before publishing,” it added.

Meanwhile, the Naira as well as the Angolan Kwanza have emerged as two of the world’s worst-performing legal tenders, a Bloomberg report said yesterday.

While emerging-market currencies have broadly benefited from a softer US dollar this quarter, African currencies have bucked the trend, weighed down by local economic challenges, the report said.

Out of the 10 worst-performing currencies globally, five are from Africa, including the Zambian Kwacha, the Angolan Kwanza and the Nigerian Naira, according to data compiled by Bloomberg.

A lack of dollar liquidity, inflationary pressures as well as volatile commodity prices are among the reasons for the weak performance. Many African economies, such as Nigeria and Angola, are reliant on oil exports, leaving them exposed when prices drop.

 But “it’s not just oil prices,” said Portfolio Manager at Mazi Asset Management, Keonethebe Bosigo. “Poor currency management and imbalances are the real culprits,” Bosigo said.

The Naira continues to face significant pressure despite reforms aimed at liberalising the current account. The Naira remains undervalued relative to its long-term neutral value due to ongoing issues around liquidity and dollar supply, according to Irmgard Erasmus, an economist at Oxford Economics.

Declining Brent crude prices have only exacerbated the problem. While improved dollar liquidity could help the naira recover over time, Erasmus points out that the government’s slow pace of reforms, combined with haphazard monetary policies continues to keep the currency in undervalued territory.

As of now, Erasmus estimates the Naira should be trading closer to 1,100 per dollar in the absence of distortions, compared to Thursday’s close of 1,544 per dollar. But, without significant policy changes and improved dollar liquidity, the outlook for the naira remains fragile.

Also, the Angolan Kwanza has depreciated almost 12 per cent this year, to about 950 per dollar as the country faces structural challenges. That’s the lowest level in 25 years.

“The Kwanza’s decline is linked to oil prices, but liquidity challenges are the bigger issue,” Erasmus said. Angola’s reliance on oil for over 60 per cent of its budget means that falling crude prices hurt the country’s hard-currency reserves. The central bank has scaled back its interventions, further weakening the currency.

The nation’s central bank on Thursday ruled out intervening in the market to stabilise the currency.

“We’re ready to carry out all the measures that are necessary,” Governor Manuel Tiago Dias said at a press conference in Luanda, the capital. “For now, our understanding is that it’s premature to intervene,” he said at the briefing where he announced that the Banco Nacional de Angola will leave borrowing costs unchanged at 19.5 per cent.

The Zambian Kwacha has touched its weakest level since June, trading as low as 26.4698 per dollar Wednesday amid concerns over fiscal sustainability.

Ongoing droughts are increasing the country’s external financing needs, with food and power imports depleting reserves. “The government’s revised interbank FX rules have had some success in stabilising the Kwacha, but investment confidence remains weak due to new regulatory changes in the mining sector,” Erasmus said.

Zambia, which has a $1.7 billion economic programme with the IMF and is considering to ask for more help, faces a tricky balance between fiscal reforms and social spending. With copper prices showing little sign of recovery and political uncertainty rising, the outlook for the Kwacha remains clouded.

African currencies will remain volatile in the short term, but improvements in global capital flows and local reforms could provide some respite over the medium term, Mazi Asset Management’s Bosigo said.