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At $47.3bn, Nigeria’s Foreign Reserves Hit Five-year High

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U.S dollar - Investors King
  • At $47.3bn, Nigeria’s Foreign Reserves Hit Five-year High

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, Monday said the country’s foreign exchange (FX) reserves had risen to $47.3 billion as of April 5.

The last time the country recorded FX reserves at this level was in July 2013.

Speaking at a seminar for Finance Correspondents and Business Editors in Uyo, Akwa Ibom State, Emefiele, who was represented by the new Deputy Governor, Corporate Services, Mr. Edward Adamu, was also upbeat that the reserves would continue to rise to about $50 billion “sometime later this year”.

At $47.3 billion, the country’s reserves are still below that of South Africa’s whose gross reserves currently stand at $50 billion.

Accretion of the country’s reserves in recent months have been driven by its successful Eurobond offerings, coupled with higher oil production and prices.

At the two-day seminar, Emefiele was also optimistic that inflationary pressure would continue to ease, anticipating that it may return to very low double digit or high single digit levels during the year.

He, however, called for more vigilance by policy makers to ensure that the country does not slip again into a recession.

The CBN governor said: “We expect a re-doubling of strong policy coordination, collaboration and cooperation which flourished during the very difficult times.
“To sustain our recovery, the need is greater now than ever for a robust policy coordination between the key aspects of the economic policymaking space.

“This would include fiscal, monetary, exchange, and trade policies, which must be targeted at protecting farmers to boost agricultural output, support local companies and enhance manufacturing and industrial capacities, with a view to diversifying the economy away from oil and fossil fuels.

“Those of us who has been entrusted with leadership and policymaking responsibilities must neither become complacent nor over-confident. We must strive to improve and sustain the same policies that have gotten us this far.”

Emefiele reiterated that the central bank has been able to ensure exchange rate stability from over N525 to a dollar in February 2017, to about N360 to the dollar.

Foreign exchange supply has also improved since the establishment of the Investors’ and Exporters’ Window, with autonomous inflows of over $20 billion through this window alone from April 2017 to date, he said.

“As sentiments improve on the macroeconomy and supported by proactive monetary, trade, industrial and fiscal policies, we expect a continued uptick in GDP growth with a positive spill over to improved employment rate.

“As policies to strengthen the agriculture and industrial sectors become more emergent, growth in these sectors will rise, further bolstering overall economy.
“As we entrench and sustain the transparency in the FX market, as FX reserves accretion continues, and market confidence and improved sentiments remain, we expect that the exchange rate will not only be stable but would begin to appreciate against major currencies.

“The adverse competitiveness outcome which such appreciation may entail would be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined.

“For one, our import bill may have fallen but our manufacturing and agriculture sectors still have a long way to go if we must attain self-sufficiency in those sectors.
“We must not be quick to discard the restrictive measures which aided our recovery simply because the metrics have improved.

“At the CBN, we will continue to fine-tune our policies and strategies based on our understanding of evolving developments and supported by in-house technical analysis and simulations.

“We will remain proactive in ensuring that the welfare of Nigerians is optimised at any point in time,” he said.

He pointed out that at the last Monetary Policy Committee (MPC) meeting, the central bank had “signalled that we will sustain the tight policies that have helped rein-in inflationary pressures”.

This, according to him, was the reason members of the committee decided to keep the Monetary Policy Rate (MPR) at 14 per cent.

“We will also continue the transparency that has attracted inflows of FX into the country while keeping FX supply to the market adequate.

“In the area of development finance, the Bank will continue to provide access to much-needed credit to sectors with the potential to create jobs on a mass scale.

“In this regard, we will explore opportunities to expand the highly-successful Anchor Borrowers’ Programme to other crops and states.

“In order to continue our gains in local production and provide assistance to boost non-oil exports, we are in the process of finalising the creation of a N500 billion fund with the Nigeria Export-Import Bank (NEXIM) to assist local manufacturers interested in non-oil exports,” he added.

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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Finance

Presidential Committee to Exempt 95% of Informal Sector from Taxes

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tax relief

The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) has unveiled plans to exempt a significant portion of the informal sector from taxation.

Chaired by Taiwo Oyedele, the committee aims to alleviate the burden of multiple taxation on small businesses and low-income individuals while fostering economic growth.

The announcement came following the close-out retreat of the PFPTRC in Abuja, where Oyedele addressed reporters over the weekend.

He said the committee is committed to easing the tax burden, particularly for those operating within the informal sector that constitutes a substantial portion of Nigeria’s economy.

Under the proposed reforms, approximately 95% of the informal sector would be granted tax exemptions, sparing them from obligations such as income tax and value-added tax (VAT).

Oyedele stressed the importance of supporting individuals in the informal sector and recognizing their efforts to earn a legitimate living and their contribution to economic development.

The decision was informed by extensive deliberations and data analysis with the committee advocating for a fairer and more equitable tax system.

Oyedele highlighted that individuals earning up to N25 million annually would be exempted from various taxes, aligning with the committee’s commitment to relieving financial pressure on small businesses and low-income earners.

Moreover, the committee emphasized the need for tax reforms to address the prevailing issue of multiple taxation, which disproportionately affects small businesses and the vulnerable population.

By exempting the majority of the informal sector from taxation, the committee aims to stimulate economic growth and promote entrepreneurship.

The proposal for tax reforms is expected to be submitted to the National Assembly by the third quarter of this year, following consultations with the private sector and internal approvals.

The reforms encompass a broad range of measures, including executive orders, regulations, and constitutional amendments, aimed at creating a more conducive environment for business and investment.

In addition to tax exemptions, the committee plans to introduce executive orders and regulations to streamline tax processes and enhance compliance. This includes a new withholding tax regulation exempting small businesses from certain tax obligations, pending ministerial approval.

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Banking Sector

CBN Governor Vows to Tackle High Inflation, Signals Prolonged High Interest Rates

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The Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso, has pledged to employ decisive measures, including maintaining high interest rates for as long as necessary.

This announcement comes amidst growing concerns over the country’s soaring inflation rates, which have posed significant economic challenges in recent times.

Speaking in an interview with the Financial Times, Cardoso emphasized the unwavering commitment of the Monetary Policy Committee (MPC) to take whatever steps are essential to rein in inflation.

He underscored the urgency of the situation, stating that there is “every indication” that the MPC is prepared to implement stringent measures to curb the upward trajectory of inflation.

“They will continue to do what has to be done to ensure that inflation comes down,” Cardoso affirmed, highlighting the determination of the CBN to confront the inflationary pressures gripping the economy.

The CBN’s proactive stance on inflation was evident from the outset of the year, with the MPC taking bold steps to tighten monetary policy.

The committee notably raised the benchmark lending rate by 400 basis points during its February meeting, further increasing it to 24.75% in March.

Looking ahead, the next MPC meeting, scheduled for May 20-21, will likely serve as a platform for further deliberations on monetary policy adjustments in response to evolving economic conditions.

Financial analysts have projected continued tightening measures by the MPC in light of stubbornly high inflation rates. Meristem Securities, for instance, anticipates a further uptick in headline inflation for April, underscoring the persistent inflationary pressures facing the economy.

Despite the necessity of maintaining high interest rates to address inflationary concerns, Cardoso acknowledged the potential drawbacks of such measures.

He expressed hope that the prolonged high rates would not dampen investment and production activities in the economy, recognizing the need for a delicate balance in monetary policy decisions.

“Hiking interest rates obviously has had a dampening effect on the foreign exchange market, so that has begun to moderate,” Cardoso remarked, highlighting the multifaceted impacts of monetary policy adjustments.

Addressing recent fluctuations in the value of the naira, Cardoso reassured investors of the central bank’s commitment to market stability.

He emphasized the importance of returning to orthodox monetary policies, signaling a departure from previous unconventional approaches to monetary management.

As the CBN governor charts a course towards stabilizing the economy and combating inflation, his steadfast resolve underscores the gravity of the challenges facing Nigeria’s monetary authorities.

In the face of daunting inflationary pressures, the commitment to decisive action offers a glimmer of hope for achieving stability and sustainable economic growth in the country.

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Banking Sector

NDIC Managing Director Reveals: Only 25% of Customers’ Deposits Insured

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Retail banking

The Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, has revealed that a mere 25% of customers’ deposits are insured by the corporation.

This revelation has sparked concerns about the vulnerability of depositors’ funds and raised questions about the adequacy of regulatory safeguards in Nigeria’s banking sector.

Speaking on the sidelines of the 2024 Sensitisation Seminar for justices of the court of appeal in Lagos, themed ‘Building Strong Depositors Confidence in Banks and Other Financial Institutions through Adjudication,’ Hassan shed light on the limited coverage of deposit insurance for bank customers.

Hassan addressed recent concerns surrounding the hike in deposit insurance coverage and emphasized the need for periodic reviews to ensure adequacy and credibility.

He explained that the decision to increase deposit insurance limits was based on various factors, including the average deposit size, inflation impact, GDP per capita, and exchange rate fluctuations.

Despite the coverage extending to approximately 98% of depositors, Hassan underscored the critical gap between the number of depositors covered and the value of deposits insured.

He stressed that while nearly all depositors are accounted for, only a quarter of the total value of deposits is protected, leaving a significant portion of funds vulnerable to risk.

“The coverage is just 25% of the total value of the deposits,” Hassan affirmed, highlighting the disparity between the number of depositors covered and the actual value of deposits within the banking system.

Moreover, Hassan addressed concerns about moral hazard, emphasizing that the presence of uninsured deposits would incentivize banks to exercise market discipline and mitigate risks associated with reckless behavior.

“The quantum of deposits not covered will enable banks to exercise market discipline and eliminate the issue of moral hazards,” Hassan stated, suggesting that the lack of full coverage serves as a safeguard against irresponsible banking practices.

However, Hassan’s revelations have prompted calls for greater regulatory oversight and transparency within Nigeria’s financial institutions. Critics argue that the current level of deposit insurance falls short of providing adequate protection for depositors, especially in the event of bank failures or financial crises.

The disclosure comes amid ongoing efforts by regulatory authorities to bolster depositor confidence and strengthen the resilience of the banking sector. With concerns mounting over the stability of Nigeria’s financial system, stakeholders are urging for proactive measures to address vulnerabilities and enhance consumer protection.

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