Despite the Central Bank of Nigeria’s efforts to strengthen the value of the naira against the dollar, Moody’s Investors Service has said foreign currency shortages will remain in the country till 2018.
This was stated in a report, ‘Foreign-currency shortages are subsiding but will take time to overcome’, released on Monday by the global rating agency. According to the report, non-financial companies operating in oil-exporting countries such as Nigeria and Angola have been most affected by dollar scarcity and local currency weakness.
It noted that managing foreign currency shortages will remain a key policy challenge for Sub-Saharan oil exporters. “In recent quarters, dollar rationing, currency devaluation and foreign currency borrowing by governments have stemmed the fall in foreign exchange reserves in Angola and Nigeria. “But this has been to the detriment of the non-oil economy, price stability and government balance sheets. Moody’s expects these challenges to continue in 2017 but alleviate in 2018,” the agency said.
It noted further that in Gabon and the Republic of the Congo, which are members of the Central African Monetary and Economic Union and where access to foreign currency borrowing is limited, the common local currency was pegged to the euro, adding that foreign exchange reserves have collapsed.
In view of that Moody’s said it expected reserves to continue falling through 2017 but at a much slower rate. “Dollar shortages make it difficult to pay suppliers of imported goods and equipment, meet dollar debt payments or to repatriate funds outside of the respective countries. “The associated local currency weakness increases the cost of servicing unhedged foreign currency debt obligations, reduces repatriated profits in foreign currency and lowers operating margins, as companies are not able to pass on high import costs to the consumer”, adds Mr Bate. Non-financial corporates with dollar revenues such as commodity operators and corporates with dollar-linked contracts are insulated from these risks,” Moody’s Vice President and co-author of the report, Dion Bate, said.