Financial analysts at EFG Hermes Holdings, a financial services company in Nigeria, have said the recently approved Special Drawing Rights allocation by the International Monetary Fund can stabilise the exchange rate and drive down inflation in the country.
ON MONDAY, the IMF had approved a global SDR allocation of SDR 456 billion, which is equivalent to $650bn to boost global liquidity at a time when the world is grappling with the COVID-19 pandemic.
The IMF also disclosed that out of the total allocation, about $275bn (about SDR 193bn) would be disbursed to emerging markets and developing countries, including low-income countries, adding that the allocation was expected to commence on August 23.
The Head of Frontier Research at EFG Hermes, Kato Mukuru, said the new allocation is expected to drive the growth of Nigeria’s foreign reserves, adding that the expected positive developments were tied to interventions by the Central bank of Nigeria.
According to him, the additional reserves should be accompanied by foreign exchange harmonisation to attain the desired results.
He said, “There is a potential of seeing the currency come down to 430 per dollar and that is the SDR allocation, Nigeria should get seven per cent of additional reserves; so, we could be talking about 3.3 billion or 6 or 7 billion, once you add the Eurobonds.
“With that level of support, we could see an attempt by the CBN to clean up the backlogs which I think will be a great first step and if that is followed by some kind of harmonisation of FX rates, we could hit a eureka. The truth is investors will become more interested in the country once we correct our macroeconomic issues.
“If the country is successful in raising these additional reserves and if they do recognise that there is a need for exchange rate harmonisation and liberalisation, that is the only way to get there.
“On inflation, it is still stubbornly high in Nigeria, which is the reality across many other African countries. But with these SDR allocations and the significant impacts it is having on smaller countries, I think it is going to be a driver on exchange rate stability. I think that is a very good signal.”
On the new forex policy by the CBN, the Chief Executive Officer of the Frontier, Ali Khalpey, urged the apex bank to keep to its promise of transferring the forex allocations that were formerly for Bureau De Change operators to banks, to prevent forex scarcity.
