NIGERIA'S MACROECONOMIC VULNERABILITIES ARE EXACERBATED BY CURRENCY SCARCITY

· Naira weakens to N614 per dollar

· Nigeria may slip to lowest global ranking

As Nigeria struggles to manage with forex market gaps, persistent foreign exchange (forex) shortages have raised concerns about the country's macroeconomic future.

MSCI Inc, a global financial group, voiced concern over the weekend that the ability to repatriate cash from Nigeria has continued to deteriorate.

MSCI has said that Nigeria may be demoted from frontier market category to standalone market status, the lowest worldwide rating.

Nigeria has been restricting dollars due to decreasing oil income, which accounts for around 90% of foreign exchange profits. Despite the government accessing the offshore bond market twice this year, the country's foreign exchange reserves have fallen 4% this year to $38.8 billion.

The naira weakened to N614 per dollar at the parallel market from N610 a week earlier, according to Abubakar Mohammed, a Lagos-based bureau de change (BDC) operator.

The global head of Index Management Research at MSCI Craig Feldman, said given the prolonged nature of the issues affecting the markets accessibility, the company has put forth the consultation to reclassify the MSCI Nigeria Indexes.

Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), also stated that more people and companies are finding it difficult to purchase dollars through banks and are turning to the illicit market. “There is no liquidity, and the banks aren't meeting,” he explained.

The naira rate fell 0.2% to 417.79 on the official market, expanding the margin above the parallel market rate to 47%.

Cordros Capital reported over the weekend that Nigeria's foreign exchange reserves increased by $220.04 million week on week to $38.88 billion. Across the FX windows, the naira rose 0.3% to N420.17 per dollar in the Investor & Exporter (I & E) window but fell 0.8% to N614 per dollar in the parallel market.

Lukman Otunuga, Senior Research Analyst at FXTM, voiced worry that despite oil prices climbing to multi-year highs, Nigeria has failed to capitalize.

He said that a disastrous mix of subpar oil output, weak infrastructure, and fuel subsidies had sapped oil income, which accounts for nearly 90% of foreign exchange revenues.

“The negative effects are still being felt across the economy and local currencies.” However, the dollar scarcity has piqued the interest of MSCI Inc., which is considering lowering the MSCI Nigeria indexes to the position of a standalone market from frontier markets, Otunuga added.

He said that the highest rating is a developed market, followed by developing markets, frontier markets, and lastly standalone markets at the bottom.

Given the difficulty in repatriating funds from Nigeria, this has placed the MSCI Nigeria Indexes in the crosshairs. Such a negative development may hit sentiment toward the countys assets at a crucial period where economic growth remains fragile.

“To add insult to injury, the NGX All Share Index has gained roughly 20 per cent this year in local currency terms. A blockbuster performance when compared to the MSCI Emerging market Index which is down roughly -19 per cent,” Otunuga said.