IMF Says Nigeria’s Foreign Investments to Crash by $11.4 billion in 2020

• The International Monetary Fund reports that Nigeria’s foreign portfolio investment is expected to decline by at least $11.4 billion amid the coronavirus economic crises.
• The global lender said the foreign investment in the Nation will decline to a deficit of $2.4 billion by the end of 2020, beginning with 9 billion dollars reported in 2019.
• Nigerians and analysts anticipate the Federal Government or CBN’s plans to revamp the economy.

The International Monetary Fund has disclosed in a report that Nigeria’s foreign portfolio investment is expected to decline by at least $11.4 billion, as the coronavirus disease devastates Africa’s largest economy.

The global lender said the foreign investment in the Nation will decline to a deficit of $2.4 billion by the end of 2020, beginning with 9 billion dollars reported in 2019.

Nigeria’s portfolio investments consist of a collection of assets comprising shares, stocks and common stock sales, as well as debt instruments, such as banknotes, bonds and debentures. They are passive investments because they do not require an active company’s management or control. In comparison, FDI has a relative short-term interest in the ownership of these passive assets by foreign investors. FDI is a major factor.

The IMF approved a sum of $3.4 billion to Nigeria on Tuesday, via a Rapid Financial Instrument. The credit comes at a time when countries worldwide are struggling to cope with the Covid 19 pandemic and the collapse in crude oil prices.

READ ALSO: COVID-19 IMF Approves $3.4 Billion Emergency Funding for Nigeria

Furthermore, the IMF clarified that liquidity-based metrics for the nation remains a concern because they make Nigeria’s low debt-to-GDP ratio highly vulnerable to impacts. In this context, the Nigerian economy is more worried about its future. The cash reserve ratio (CRR), which many Nigerian banks frowned on, the loan Deposit Ratio (LDR), and money supplies (M2), are some of the Liquidity-based measures that remain of concern to the IMF. It said:

“Public debt is projected to remain sustainable under a variety of shocks, albeit liquidity based indicators remain a concern and make Nigeria’s low debt-to-GDP ratio highly vulnerable to shocks. Under staff’s baseline, public debt will increase to 34.8% of GDP in 2020 (including the RFI purchases), would reach 37.4% in 2022 and come down to 36.3% in 2025, significantly below most emerging market peers’ debt levels.

“These risks are partially mitigated after accounting for extra-budgetary revenue (as the authorities currently plan to stop some of the earmarked funds for certain activities, such as the Road Fund or Tobacco Fund) and state and local government revenue; access to these resources in the case of an emergency would allow the ratio to remain high but manageable at between 20 to 30%.”

The global lender also said that the country’s exports of oil and gas are expected to decline by at least $26.5 billion, warning that Nigeria is still exposed to increasing risks, particularly in the oil markets. “Rising unsold cargoes could also impact oil production, which could decline further through OPEC agreed cuts or if prices persist below production costs,” the IMF said.

In its letter to the IMF, Nigeria included plans to introduce a “more unified and flexible exchange rate regime,” which would increase revenue by 2021 to 15% of GDP, depending on the region.

The letter, signed by the Nigerian finance minister and governor of the Central Bank, also confirmed that, as outlined in March, a new fuel price policy would permanently abolish expensive fuel subsidies. The subsidies were projected to be costing 10 trillion naira from 2006 to 2018 ($27.78 trillion).

Adebayo Ajayi, Member of the Nigerian Stock Exchange (NSE), agrees with the IMF about the dearth of IFPs by 2020, with uncertainty about economic indices and parameters.

He explained in an interview that the status of the nation’s foreign reserves and the demand of crude oil are the country’s main attractions. He said,

“With the depleting reserve and ridiculous crude oil price, there is no way Nigeria would not lose foreign investors in 2020, except the government, introduced capital controls, which no one prays for, as investors prefer free entry and free exit. Without any micro change, no FPI for us. The equity market felt the impact a few weeks back when several foreign investors sold their stakes and left the bourse the bourse.

“The way out for the nation is to come up with an international commodity that would be in high demand across the globe immediately after COVID-19, as that would attract FPIs to the country. Anything out of that, 2020 will be a year of no FPIs.”

Nigerians and analysts can not wait to see the Federal Government or CBN’s security measures and the affirmation of Nigeria’s ability to recover from the foreign portfolio and other economic crises sooner than anticipated.