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CBN’s $7.5bn loans from US lenders mar Nigeria’s credit rating –Report

*The Central Bank of Nigeria’s security borrowing from JP Morgan and Goldman Sachs could set the country’s credit rating on a free fall to junk and leave ‘fragile investor confidence’ amid ongoing efforts at repositioning the economy, report says

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Nigeria’s Dollar bond due in 2030 sank 2.295 cents to its lowest level in the past one month last Friday at 83.221 cents as a crisis of confidence in the economy heightened among investors

The Central Bank of Nigeria’s (CBN) security borrowing from JP Morgan and Goldman Sachs could set Nigeria’s credit rating on a free fall to junk amid efforts at repositioning the economy.

The CBN, in its newly released 2022 financials, reported borrowing $7.5 billion from US banks JP Morgan and Goldman Sachs by pledging securities.

Analysts say that the loan deal, which the central bank said was contracted “in exchange for its securities to be held for collateral”, may impair the nation’s fragile fiscal position and credit rating.

The Bank also disclosed that it entered into 30-day forward contracts totalling 3.15 trillion Naira in 2022 with undisclosed counterparties.

Sylvester Anaba, an analyst at a Lagos investment house, said that there would not be severe consequences as much as CBN can pay back its debt to these foreign creditors, Premium Times report said.

Anaba said, however, “if they default, then investors will begin to dump our bond. It will also impact our credit rating.

“Recently, they brought up some ratings and Nigeria was maintained at B-, about six notches down to junk rating.

“It means by the time CBN defaults; there is nothing that will save us from entering junk.”

The Central Bank’s disclosure on borrowings of $7 billion and $500 million, respectively, from JP Morgan and Goldman Sachs leaves fragile investor confidence in Nigeria in danger of fresh harm after President Bola Ahmed Tinubu’s host of currency reforms and termination of a regime of costly fuel subsidies that are already winning international investors back.

Rating agency Fitch last November downgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’, citing “deterioration in Nigeria’s government debt servicing costs and external liquidity despite high oil prices.”

A verdict by New York-based Moody’s Investors Service early this year similarly cut Nigeria’s ratings to non-investment grade in danger to its prospects of sourcing debt from the international capital market.

Zainab Ahmed, former Honourable Minister for Finance, rejected Moody’s position.

The Minister had argued in a report: “But these are external rating agencies that don’t have the full understanding of what is happening in our domestic environment.”

Against the backdrop of recent reforms, S&P Global Ratings earlier in August revised its outlook on Nigeria to stable from negative.

Fiscal and monetary reforms in Nigeria

The rating agency, in a statement, said: “Nigeria’s newly elected government has moved quickly to implement a series of fiscal and monetary reforms, which we believe will gradually benefit public finances and the balance of payments.”

Analysts are worried that the various revelations from the newly released CBN financial reports may reverse the gains of recent months.

An exposure that high without documentation in the country’s public debt books is an early setback to recent measures like the unification of Nigeria’s multiple exchange rates, aimed at stabilising the Naira, report said.

Nigeria’s Dollar bond due in 2030 sank 2.295 cents to its lowest level in the past one month last Friday at 83.221 cents as a crisis of confidence in the economy heightened among investors.

Economy still grapples with confidence crisis in Forex market, by Muda Yusuf

Commenting on the effects of the development in the Forex market, Dr. Muda Yusuf, Chief Executive of Centre for the Promotion of Private Enterprise (CPPE), was quoted to have said: “We are currently grappling with a confidence crisis in the Forex market.

“This may further worsen the confidence problem. It could aggravate speculative activities.

“Rating agencies are going to begin to revise our ratings. You know what that will do to our reputation as a country.”

Other alleged irregularities

CBN’s books for 2022 showed that $3.2 billion is owed to “an unnamed party” as foreign currency forward contract payables–no notes providing clarity on the transaction accompanying that item.

A leading economist, who sought anonymity said: “Since the loans from JP Morgan and Goldman Sachs etc., are collateralised with Nigeria’s foreign assets (securities), then the current gross external reserves of about $30 billion becomes $16.3 billion net.

“If the other outstanding obligations are included, CBN is technically insolvent.”

The expert remarked that the low levels of the real reserves has encumbered the apex bank’s intervention in the currency market.

The current state of the reserves means investors will rather accept the exchange rate as it is at the moment on the knowledge that the reserves could run dry soon, according to report.

“The rush to the exit door will create an fx market stampede,” the analyst said.

The decision of international investors in 2021 to quit the open market operation (OMO) bills denominated in dollars was set to strain the reserves with foreign investment in the bills already at $17 billion a year earlier.

The analyst noted “it was at this point that CBN took collateralised loans from these banks.”

He noted that immediate past President Muhammadu Buhari, the CBN Board and National Assembly (NASS) failed to bring Mr. Godwin Emefiele, now suspended Governor of CBN, to book “in a mark of failure of oversight, making them culpable….”

The expert also stated: “While they do not have to approve CBN transactions, they did not sanction the Governor for not publishing and gazetting Annual Reports, which would have exposed the scam.

“The entities that lent money to CBN have violated an important international norm: If the law of a country requires published audited accounts, they broke the law by lending to an entity that did not meet the law.”

He further noted: “The IMF should be asked questions: CBN was given IMF advances in 2020, what Annual Report formed the basis? What safeguards took place before the money was advanced?

“Why has IMF Annual Reports since 2016 not pointed out these issues? Can IMF be relied upon as a credible and impartial organisation?” he said.

A matter of transparency  Report indicates the failure of the CBN to publish its financial reports as and when due was in gross contravention of extant laws in Nigeria.

According to report, the Central Bank of Nigeria for years, repeatedly failed to release its annual reports showing details of its operations and financial obligations.

However, since 2005 when it started publishing details of its annual report on its Web site, the CBN never failed to publish the report until it stopped the publication of the crucial documents shortly after the Muhammadu Buhari administration assumed power.

What does CBN Act say?

According to the CBN Act 2007, the Bank is expected to publish its report within two months after the end of each financial year.

It stated: “The Bank shall, within two months after the close of each financial year, transmit to the National Assembly and the President a copy of its annual accounts certified by the Auditor.

“A report required to be submitted to the National Assembly and the President shall be published by the Bank in such manner as the Governor may direct.”

The Act also says: “The Board shall ensure that accounts submitted pursuant to this section shall, as soon as possible be published in the Gazette.

“The Bank shall, as soon as may be practicable after the last day of each month makeup end, publish a return of its assets and liabilities as at the close of business on that day, or if that day is a holiday, as at the close of business on the last preceding business day.”

Analysts said the failure of the CBN to publish the report had sent wrong signals to investors and others interested in understanding the state of the economy and concealed Nigeria’s fiscal problems for far too long.

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