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.
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