$2.25bn facility:  Afrexim, UBA, NNPC intervention to boost FX liquidity – Analysts

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African Export-Import Bank’s release of $2.25 billion out of the $3.3 billion foreign exchange (FX) support facility will ameliorate the acute liquidity shortage in the country, analysts have said. 

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, in a deal that sees Nigeria securing cash upfront for future crude oil sales, on December 29, 2023.

THISDAY reported that the transaction, which saw the release $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 as crude offtakers.

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.

TheNewsMatrics reports that naira crashed below N1000 per United States dollar at the official market late last year and is currently trading at about N1,200 per dollar in the parallel market.

However, other developments that will inject more funds 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 on the development, welcomed the initiative geared towards supporting 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.”