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Nigeria Needs Urgent Reform for Stable Economy, Says IMF

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  • Nigeria Needs Urgent Reform for Stable Economy, Says IMF

The International Monetary Fund (IMF) is expected to warn Nigeria its economy needs urgent reform, according to a report seen by Reuters that could delay talks over $1.4 billion in international loans.

The Washington-based fund will urge Nigeria, a major oil producer, to introduce immediate changes to its exchange rate policy, and say its recent reform plan is not enough to drag Africa’s biggest economy out of recession, according to the 68-page report.

“Much more needs to be done,” the IMF said in the document, written after a final meeting between its representatives and top officials in the capital Abuja before the fund issues its verdict on Nigeria’s economy, expected on March 29.

“Further actions are urgently needed,” it said.The report – from the fund’s acting secretary and addressed to members of its executive board – is set to form part of the IMF’s verdict, although Nigeria can request alterations.

Three people familiar with the negotiations said it would send an important signal to institutional lenders.The World Bank has been in talks with Nigeria for a loan of at least $1 billion for more than a year and the African Development Bank (AfDB) has $400 million on offer, but discussions have stalled over economic reforms.

Nigeria is seeking the funding for infrastructure investment and to help plug an expected record deficit in this year’s budget as it boosts spending to try to end a recession.

“The tone of the IMF will be critical in terms of signalling,” said one of the people familiar with the negotiations, who spoke on condition of anonymity because they were not authorised to speak to media.Two of the people with knowledge of the loan talks said the lenders were unlikely to withhold funding entirely.

President Muhammadu Buhari has rejected a devaluation of the naira currency and backed curbs imposed by the central bank that force firms to buy dollars needed for imports for a premium on the black market.

Nigeria has at least five exchange rates – the official one, a rate for Muslim pilgrims travelling to Saudi Arabia, one for school fees abroad and a retail rate set by licensed exchange bureaus.

The IMF said that if Nigeria did not remove foreign exchange restrictions and unify the exchange rates, it risked “further deterioration in (forex) reserves” and “disorderly exchange rate depreciation.”The report said Nigeria should also tackle its over-dependence on oil, low government revenues, a large infrastructure deficit, a rising debt service and double-digit inflation.

​Nigeria has not asked the IMF for fiscal support. An IMF spokeswoman declined to comment.A spokesman for the presidency directed inquiries to the ministries of finance and budget and national planning. The finance ministry and central bank did not respond to repeated attempts to seek comment. A budget and planning ministry spokesman declined to comment.

A World Bank spokeswoman said the lender was continuing its discussions with Nigeria and other partners and “will determine with the government the most appropriate lending instrument to support the implementation” of reform plans.

The AfDB declined to comment.

​POLITICAL RISK

Earlier this month, Nigeria released an Economic Recovery and Growth Plan (ERGP) for 2017 to 2020 calling for a market-determined exchange rate. But it offers few concrete steps.

The ERGP “is more optimistic on growth than (IMF) staff… does not explicitly call for tighter monetary and fiscal policy in the near term, and assumes no immediate change in exchange rate policy – all of which are essential to reduce vulnerabilities and increase investors’ interest,” said the IMF.Delays in adopting these policies increase vulnerabilities and risk reforms being politicised ahead of the 2019 elections, the IMF said.

Nigeria’s woes go beyond its economy, said the report, piling additional challenges onto the government. The northeast is in the throes of a humanitarian crisis caused by the Boko Haram Islamist insurgency, which is threatening millions with starvation.

Adoption of a fully flexible exchange rate would likely see the naira, which is propped up by the central bank but trades around 30 percent weaker on the parallel market, plummet in value.

Buhari, a 74-year-old former military ruler who led the country for 20 months in the 1980s, resisted pressure from the IMF and World Bank to devalue the naira in his previous tenure before being deposed in a coup.​Two of the people with knowledge of the negotiations said even without the IMF’s proposed reforms, the World Bank and AfDB were likely to offer the loans to Nigeria.

“There might be some eye-rolling but then they’ll still go through with the loans,” said one, a diplomat, adding that the World Bank could offer its money in tranches as a way of holding back and enforcing reforms.

The report said Nigeria should articulate a sustainable fiscal policy and adopt structural reforms to diversify the economy away from its dependence on oil and promote competitiveness.

“The outlook is challenging, with growth expected to remain flat and macroeconomic imbalances to persist,” it said.
Klaus Leidorf on

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Gold

Gold Steadies After Initial Gains on Reports of Israel’s Strikes in Iran

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Gold, often viewed as a haven during times of geopolitical uncertainty, exhibited a characteristic surge in response to reports of Israel’s alleged strikes in Iran, only to stabilize later as tensions simmered.

The yellow metal’s initial rally came on the heels of escalating tensions in the Middle East, with concerns mounting over a potential wider conflict.

Spot gold soared as much as 1.6% in early trading as news circulated regarding Israel’s purported strikes on targets in Iran.

This surge, reaching a high of $2,400 a ton, reflected the nervousness pervading global markets amidst the saber-rattling between the two nations.

However, as the day progressed, media reports from both countries appeared to downplay the impact and severity of the alleged strikes, contributing to a moderation in gold’s gains.

Analysts noted that while the initial spike was fueled by fears of heightened conflict, subsequent assessments suggesting a less severe outcome helped calm investor nerves, leading to a stabilization in gold prices.

Traders had been bracing for a potential Israeli response following Iran’s missile and drone attack over the weekend, raising concerns about a retaliatory spiral between the two adversaries.

Reports of an explosion in Iran’s central city of Isfahan further added to the atmosphere of uncertainty, prompting flight suspensions and exacerbating market jitters.

In addition to geopolitical tensions, gold’s rally in recent months has been underpinned by other factors, including expectations of US interest rate cuts, sustained central bank buying, and robust consumer demand, particularly in China.

Despite the initial surge followed by stabilization, gold remains sensitive to developments in the Middle East and broader geopolitical dynamics.

Investors continue to monitor the situation closely for any signs of escalation or de-escalation, recognizing gold’s role as a traditional safe haven in times of uncertainty.

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Commodities

Global Cocoa Prices Surge to Record Levels, Processing Remains Steady

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Cocoa futures in New York have reached a historic pinnacle with the most-active contract hitting an all-time high of $11,578 a metric ton in early trading on Friday.

This surge comes amidst a backdrop of challenges in the cocoa industry, including supply chain disruptions, adverse weather conditions, and rising production costs.

Despite these hurdles, the pace of processing in chocolate factories has remained constant, providing a glimmer of hope for chocolate lovers worldwide.

Data released after market close on Thursday revealed that cocoa processing, known as “grinds,” was up in North America during the first quarter, appreciating by 4% compared to the same period last year.

Meanwhile, processing in Europe only saw a modest decline of about 2%, and Asia experienced a slight decrease.

These processing figures are particularly noteworthy given the current landscape of cocoa prices. Since the beginning of 2024, cocoa futures have more than doubled, reflecting the immense pressure on the cocoa market.

Yet, despite these soaring prices, chocolate manufacturers have managed to maintain their production levels, indicating resilience in the face of adversity.

The surge in cocoa prices can be attributed to a variety of factors, including supply shortages caused by adverse weather conditions in key cocoa-producing regions such as West Africa.

Also, rising demand for chocolate products, particularly premium and artisanal varieties, has contributed to the upward pressure on prices.

While the spike in cocoa prices presents challenges for chocolate manufacturers and consumers alike, industry experts remain cautiously optimistic about the resilience of the cocoa market.

Despite the record-breaking prices, the steady pace of cocoa processing suggests that chocolate lovers can still expect to indulge in their favorite treats, albeit at a higher cost.

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Crude Oil

Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production

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The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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