(Ecofin Agency) - Foreign investors reduced their investment portfolios in Nigeria by $15.7 billion in the first quarter of 2020, according to an analysis by Fitch Ratings, which quotes estimates from the International Monetary Fund (IMF).
“We expect outflows to materialize later in the year, which, alongside a significant current-account deficit and continued CBN resistance to overhauling the exchange-rate framework, will drive a fall in international reserves from $38.6 billion at end-2019 to $23.3 billion by end-2020,” the rating agency said in its analysis.
The degradation of this resource will reduce Nigeria's import possibilities from 5 months at the end of 2019 to only 3 months at the end of the current year. Several factors have led to this situation.
Nigeria mainly exports oil, which generates 90% of its foreign exchange earnings. The fall in the price of this commodity as well as the decline in revenues from tourism and remittances from its diaspora have negatively impacted Nigeria's foreign currency revenues. The Central Bank has taken two measures in this regard. First, it slightly devalued the local currency (naira), and second, it strengthened procedures for foreign currency repatriation.
The consequences of this situation will affect banks, especially those that have borrowed on the international market and need to find resources to repay their debts. The decline in foreign exchange resources may also reduce the capacity of local government to mobilize budgetary resources. This may slow down transfers under the public subsidy in the petroleum product distribution sector, which accounts for a large share of the credit granted by the banks.