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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

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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