Dollar shortage: Moody’s says Nigeria’s recovery may take time – Punch

Oyetunji Abioye

Although foreign currency shortages in Nigeria and other sub-Saharan African countries are easing, it will take time for the sovereigns, banks and non-financial companies to restore their financial health, Moody’s Investors Service has said.

In a report released on Monday, Moody’s noted that dollar shortages stemming from lower oil and commodity prices had hit the finances of countries in the sub-region.

The report was titled, “Foreign-currency shortages are subsiding but will take time to overcome.”

In a statement on Monday, Moody’s Vice-President and co-author of the report, Lucie Villa, was quoted as saying, “Falling oil and commodity prices over the past two years have led to foreign currency shortages in numerous sub-Saharan African countries, with oil exporters hit particularly hard.”

“The stabilisation in oil and commodity prices over recent months will help to ease the pressure, but any recovery will depend on continued higher prices and could take some time.”

According to the VP, managing foreign currency shortages will remain a key policy challenge for sub-Saharan oil exporters.

In recent quarters, dollar rationing, currency devaluation and foreign currency borrowing by governments have stemmed the fall in external reserves in Angola and Nigeria.

According to the report, in the region’s banking sector, banks in Angola, Nigeria and the Democratic Republic of the Congo remain the most affected by foreign currency shortages due to their economies’ high reliance on dollars.

It said the region’s banks’ foreign currency deposits had been depleted and they had limited capacity to source new foreign funding.

“The resultant currency devaluations have also eroded banks’ loan quality, profitability and capital”, Moody’s Senior Vice-President and co-author of the report, Constantinos Kypreos, added.

According to a statement by Moody’s, pressures appear to be receding as their central banks continue to inject more dollars into the economy on the back of higher oil prices and related revenues.

Banks in South Africa are the least affected, reflecting the system’s limited dollarisation levels and low reliance on foreign funding.

The statement read in part “Although a gradual increase in commodity prices over recent months is supporting foreign currency liquidity and helping to ease currency shortages, it is too early to conclude that pressures on banks have reversed.

“This can only happen gradually as dollars flow back into the economies and exchange rates in ‘unofficial’ markets converge with official rates. Despite these challenges, banks in sub-Saharan Africa generally maintain high capital buffers and their profitability is robust.”

Non-financial companies operating in oil exporting countries such as Nigeria and Angola have been most affected by dollar scarcity and local currency weakness, according to the report.

Moody’s expects these challenges to continue in 2017 but alleviate in 2018.

“Dollar shortages make it difficult to pay suppliers of imported goods and equipment, meet dollar debt payments or to repatriate funds outside of the respective countries”

Moody’s Vice-President and co-author of the report, Dion Bate, was quoted as saying, “The associated local currency weakness increases the cost of servicing unhedged foreign currency debt obligations, reduces repatriated profits in foreign currency and lowers operating margins, as companies are not able to pass on high import costs to the consumer.”

Naira drops to 381/dollar despite CBN’s $205m offer – Punch

Oyetunji Abioye

The naira depreciated slightly from 380 per United States dollar to 38i/dollar on the parallel market on Monday.

This came despite a $205m dollar injection into the foreign exchange market by the Central Bank of Nigeria.

In a statement on Monday, the CBN said ahead of the outcome of the Monetary Policy Committee meeting in Abuja, it had injected over $205m into the foreign exchange market.

A breakdown of the intervention indicated that the sum of $100m was released for the wholesale segment of the market for both spots and forwards.

Also, Basic Travel Allowance which comes under invisibles segment garnered $50m while the Small and Medium-scale Enterprises segment got $55m.

The Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said the newly created ‘Investors and Exporters FX Window’ had so far recorded a trade volume in the sum of $1.1bn from both the CBN and autonomous windows.

This, he said, was an indication of the appreciable level of confidence in the forex management by foreign investors and autonomous suppliers of foreign exchange to the market.

The naira, which hovered around 390/dollar about two weeks ago, has continued to appreciate on the back of continued forex injection by the CBN.

Market analysts have encouraged the CBN to continue with the latest forex policy measure.

Nigeria raises interest on unpaid taxes to try to discourage evaders – Reuters

ABUJA May 22 (Reuters) – Nigeria will increase the interest rate on unpaid taxes to discourage companies and individuals from paying late and racking up a larger debt, the finance ministry said on Monday.

The ministry said the measure will take effect on July 1 and that the rate would be five percent over a central bank rate known as the Minimum Rediscount Rate, a benchmark lending rate.

“The review of the interest rates on unpaid taxes was one of the necessary measures adopted by the Federal Government to enhance tax compliance, minimize tax evasion and deter late payments,” the finance ministry said in a statement.

Economists have long criticised the low levels of tax in Africa’s largest economy and in March the Abuja government laid out plans to increase its overall tax to GDP ratio to 15 percent by 2020 from 6 percent now.

Among plans, the OPEC member seeks to improve tax collection, targeting an annual tax revenue of 350 billion naira ($1.15 billion) a year and proposes hiking a luxury goods tax to 15 percent from 5 percent. ($1 = 305.4000 naira) (Reporting by Camillus Eboh; Writing by Paul Carsten; editing by Richard Lough)