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Nigeria’s dollar debt surged after the surprise weekend ouster of the central bank chief, and as fresh comments on merging multiple exchange rates added to signs that President Bola Tinubu is resetting policies blamed for crippling Africa’s biggest economy.
Governor Godwin Emefiele was suspended by Tinubu after the markets closed on Friday, and then detained by Nigeria’s state security service a day later for unexplained “investigative reasons.” Folashodun Shonubi, a deputy governor in charge of operations at the bank, took over in an acting capacity.
Investors have welcomed the change because it signals a move away from unorthodoxy under the former bank chief. Emefiele’s policies — including allowing a complex regime of multiple exchange rates — had long been criticized by investors, economists and institutions like the World Bank. Under his tenure, the central bank also loaned the government of former President Muhammadu Buhari 22.7 trillion naira ($49 billion), helping push public debt to a record 77 trillion naira.
Nigeria’s international bonds jumped the most among emerging-market peers in trading on Monday, a public holiday in Nigeria, with its longest-dated dollar debt rising to the highest since January. The notes maturing in 2051 rose more than 3 cents on the dollar to as high as 73.74, the biggest gain this year. The premium investors demand to hold Nigerian debt over US Treasuries fell 46 basis points to 710, the biggest drop this year, according to a JPMorgan index.
“This could spell the end of unorthodox and often conflicting and confusing monetary policies that held back economic growth and destroyed local and foreign investor confidence,” Ayodeji Dawodu, head of Africa sovereign and corporate credit research at BancTrust & Co. in London, said by phone.
Unified Rates
Wale Edun, an influential member of Tinubu’s advisory board, told Bloomberg by phone on Monday that the unification of exchange rates was “imminent.”
“I would say it would have to be done within a quarter as rather than within a year,” he said. “ I think you’re talking, think quarters rather than years, that’s where I would put it.”
Under Emefiele, Nigeria’s central bank offered the US dollar through several windows at tightly controlled rates, with little liquidity, to businesses and individuals. This forced many to the black market, where the dollar traded more freely but at about a 60% premium to the official rate.
Emefiele was widely seen as acting in lockstep with the administration of Tinubu’s predecessor, Buhari. That government was perceived to be more statist and socialist in its approach, said Yemi Kale, chief economist for Nigeria at KPMG LLP and the nation’s former statistician general. “The markets will respond positively to an administration it believes to be more market oriented,” Kale said.
Tinubu criticized the country’s central bank in his May 29 inaugural address, vowing to unify the multiple exchange rates in order to “direct funds away from arbitrage into meaningful investment in the plants, equipment and jobs that power the real economy.”
“To be credible, the implementation of policy changes would most likely need a new team,” Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd. in London, said via email, explaining the market reaction to Emefiele’s ouster.
Naira Devaluation
The current naira exchange rate of 471.92 naira to the dollar, a record low, likely needs to be adjusted to about 700-750 naira, closer to the current black-market rate, JPMorgan said in an investment note on May 31. “Our baseline expectation is that an adjustment to these levels is likely, barring significant upside to oil prices or production,” the bank said.
The naira has closed lower for three consecutive days, its longest streak of losses since May 12. Analysts expect that the currency could trade anywhere between 650 to 750 to the dollar as Nigeria allows it to trade more freely. Domestic trade will resume on Tuesday as Monday is a public holiday in Nigeria.
A naira at that level, combined with Tinubu’s decision to remove a costly gasoline subsidy, “means the government does not have [to] borrow as much, just to pay interest on debt,” Charlie Robertson, head of strategy at FIM Partners, said in a series of posts on Twitter.
Source: Blommberg.