Nigeria’s Multiple-Forex Regime Unsustainable—BMI Research

**FX Liquidity Will Boost Investor Sentiment

By Modupe Gbadeyanka

A member of Fritch Group Company, BMI Research, has revealed that improvement in the foreign exchange (Forex) liquidity in Nigeria will boost investor sentiment, just as it warned that the current multiple-rate FX regime was unsustainable beyond the short term.

In its Country Risk Report for Nigeria released recently, which was sighted by Business Post, BMI Research said despite weak first quarter data leading it to revise down its growth forecasts in 2017, “we maintain a broadly constructive outlook on prospects for Nigeria’s economic recovery over the coming quarters,” pointing out that “increasing oil output, an improvement in FX liquidity will boost investor sentiment.”

The report noted that a robust increase in oil output will sustain Nigeria’s return to a current account surplus over the coming quarters, which will “support a gradual relaxation of capital controls imposed on the country’s external position, boding well for foreign investment into the economy.”

“Slowing inflation and sluggish economic growth will encourage the Central Bank of Nigeria to adopt a more dovish stance when setting monetary policy over the coming quarters, prompting the beginning of the cutting cycle before year-end 2017. That being said, concerns over the normalisation of monetary policy in developed markets and high levels of credit growth will temper the pace of easing,” BMI Research said.

The report further stated that Nigeria’s central bank will continue to tightly manage the Naira through 2017, as the country’s improving fundamentals indicate downside pressure on the currency is beginning to decline, warning that “the current multiple-rate FX regime is unsustainable beyond the short term, and will likely be consolidated into a single-more flexible-rate in 2018.”

It said, “In the context of growing concerns in Nigeria’s domestic media regarding the health of President Muhammadu Buhari, we take a closer look at the potential fallout should he leave office before his term ends in 2019.

“Past precedent and constitutional process means we would expect relatively little instability in the handover of power, but north-south tensions could rise to the fore in the 2019 election as a result.”

However, BMI Research said, “While we believe that the security risks Nigeria faces on a number of fronts will eventually be contained, if the situation significantly deteriorates into a more intense level of conflict, this would potentially affect investment, exports, and growth.

“Power sector reforms are crucial for long-term productivity gains. If these are slowed or stalled, this would lead to lower long-term trend growth than we currently expect.”

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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