Outlook for naira positive amid fiscal worries going into 2018

Nigeria’s new foreign exchange policy, which has seen the creation of the Investor and Exporters forex window by the Central Bank of Nigeria (CBN) and the continuous injection of dollar into the foreign exchange market, has given the naira a positive outlook in the near to medium term.

Analysts, currency traders and end-users say the monetary authorities have taken the right measure to boosting critical sectors of the economy. They projected that the forex regime would further shore up the value of the local currency right through to the end of the year.

“We expect rate improvements and convergence of the current multiple rates in the market,” said a trader.

However, there are worries on the sustainability of the ambitious steps being taken by the CBN going into 2018 due to fiscal risks associated with preparations for the 2019 elections.

“Preparations for the coming elections will begin in earnest in 2018 and may stand in the way of the CBN in managing price movements and the exchange rate,” says Bisi Oni, executive director and chief operating officer at FundQuest Financial Services Limited.

He said the CBN has been proactive since the past five months with the cocktail of policies it has brought to bear on the economy, which has seen the reflation of the forex market and the return of foreign investors to the capital market.

Oni said he believes the CBN can support the naira for up to one year with the current levels of external reserves, but CBN ability would depend largely on government, the fiscal authorities.

“There must be sync between both authorities for the economy to work properly,” he said, adding “if government and the narratives
surrounding it, that it is frugal, etc, and if they can live the narrative, the current external reserves can defend the naira for up to one year.”

On the 2019 elections, he said the hawks are already gathering.

My fears are that election spending may decide how far the CBN can go defending the naira. In a year to an election, attention always shifts from the economy. In real terms we just have only six months to put value into the economy before politicking starts,” he pointed out.

The CBN efforts at shoring the value of the naira has also given confidence to local banks to start raising dollar denominated loans, especially Eurobonds as the naira continues to firm up against international currencies.

Zenith bank and United Bank for Africa have since taken this initiative as they have successfully raised $500 million Eurobonds recently.

Analysts opinion indicates that more banks, especially the likes of Guaranty Trust Bank, Access Bank and Fidelity Bank may refinance their due Eurobonds, if the current state of naira is sustained.

Guaranty Trust Bank’s $400 million Eurobond is due in November, while Fidelity’s $300 million falls due next May. Access Bank has about $350 million bonds due this July.