The continued depreciation of the nation’s currency, Naira, amid the $3.3 billion crude oil-backed loan agreement between Afrexim Bank and Nigerian National Petroleum Company (NNPC) Limited has become a matter of concerns to analysts amd other stakeholders
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The Bola Tinubu administration embarked on some reforms, including the removal of subsidy and unification of the FX market in June 2023.
This was followed with depreciation of the naira, volatility in the FX market as well aa hardships that Nigerians are still grappling with.
Consequently, the federal government through the NNPC secured the $3.3 billion crude oil-backed loan facility from the African Export-Import Bank (Afrexim Bank), for which a total disbursement of $3.175 billion has been made.
But the volatility in exchange rate for which the agreement was based has not abated, hitting $1900/$ before appreciating to about $1100/$.
But of recent the FX market has not witnessed peace as the currency has continued to experience a roller-coaster trajectory
Aside from the dip in the naira value, the foreign exchange (FX) turnover rate has continued to experience decreases, a possible signal of loss of confidence by traders and investors .
Analysts say the multifaceted challenges facing the country including various economic issues like naira depreciation, high inflation rate and general hardship could pose further complications for policymakers and businesses alike.
Specifically, they noted that the currency’s instability, for instance , can lead to increased costs for imported goods and services, which in turn could drive inflation higher.
The development, they further argued could put the Central Bank of Nigeria (CBN) under pressure , even aa the hawkish stance on the monetary policy measures have not yielded the desired results.
Afrexim Bank, through its website had announced the disbursement of $925 million- another tranche of the $3.3 billion crude oil-backed loan agreement it entered into with the NNPC last year, bringing the total payment for the facility to $3.175 billion.
The bank explained that the current payment was raised from crude oil off-takers like Oando Group and Sahara Energy as well as others.
It stated, “African Export-Import Bank (Afreximbank) has announced an additional disbursement of US$925 million under the syndicated US$3.3 billion crude oil-backed prepayment facility sponsored by NNPC. This brings the total current funded facility size to US$ 3.175 billion.
The bank had earlier disbursed around $2.15 billion to the federal government in December.
The President and Chairman of the bank, Prof. Kennedy Oramah described the original facility as a ‘landmark,’ noting it as the largest crude oil-backed facility in Nigeria and one of the largest syndicated debts raised in Africa. He added that the successful closure of the first accordion highlighted the strong market appetite for well-structured commodities-backed instruments.
The National Economic Council (NEC) had, last year expressed confidence that the loan would help stabilise the forex market in light of the severe volatility then.
However, the facility, envisaged for a short-term solution to forex liquidity problems is yet to achieve the stated objective.
