Local fuel refining, $750m loan will stabilize naira – Report

Local fuel refining, $750m loan will stabilize naira – Report

The naira is projected to exchange between N1,423.26/$ and N1,550/$ in the second half of this year, report by United Capital report titled: Balancing Act: Nigeria’s Path to Stability.

The naira yesterday exchanged at N1,570/$ at the parallel market, and appreciated by 6.05 per cent to close at N1,500.32/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM)- official window.

The report released yesterday, said local petrol supply from the Dangote Refinery and a $750 million disbursement from the World Bank will keep naira stable in the remaining months of the year.

The World Bank recently granted the Federal Government a $750 million loan to offer subsidies to developers and operators of solar mini-grids in areas across the country that lack electricity access.

The loan, approved under the Distributed Access through Renewable Energy Scale-up (DARES) project, aims to increase the supply of electricity to households and micro, small, and medium-sized enterprises (MSMEs) through private sector-led distributed renewable energy initiatives.

The commencement of production of Premium Motor Spirit (PMS) also known as petrol by the Dangote Oil Refinery   and Petrochemicals company is also expected to lift the naira.

The development is expected to harness Africa’s abundant crude oil resources to produce refined products locally, even as the company aims to catalyze a virtuous cycle of industrial development, job creation, and economic prosperity

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The report said financial system liquidity is expected to increase by 40.2 per cent in the second half of the year while Bond yields are likely to remain elevated due to the government’s reliance on the domestic debt market. It added that investors are expected to favor short-term rates over longer-term exposure, leading to mixed sentiments in the bonds market.

It said the naira has experienced notable volatility in during the first half of 2024, with much of the weakness attributed to devaluation in January 2024 when the Central Bank of Nigeria (CBN) revised its methodology for setting the official exchange rate.

“The currency weakened by 34.33 per cent in the official market, from N988.46/US$ on January 2, 2024, to N1.505.30/US$ by June 28, 2024, and fell by 21.05 per cent in the parallel market, from N1,200/$ to N1,520/$ over the same period,” it said.

It explained that although this adjustment has seen improvements in the elimination of the premium between the official and parallel markets, and improved market turnover, indicating some reform progress, but the local currency has continued to weaken against the greenback.

 “However, the naira continued to weaken, losing 7.3 per cent against the US dollar post-devaluation due to high dollar demand for fund repatriation after the CBN cleared a backlog of foreign exchange requests, coupled with the ongoing dependency on imported petrol,” it said.

The report said the sustainability of these measures’ hinges on improved capital inflows through improved crude oil production and enhanced export revenues replenishing foreign reserves.

 “Should these vital inflows fail to materialize, the efficacy of CBN interventions may wane over time, leaving the naira vulnerable to further depreciation in the absence of robust external support,” it said.

In addition to the power subsidy, the Federal Government plans to provide performance-based grants to eligible mini-grid operators based on new customer connections for isolated mini-grids and a percentage of capital expenditures for interconnected mini-grid projects.

The grant will also cover standalone solar (SAS) systems for households, MSMEs, and agribusinesses, supporting the rapid deployment of SAS solutions in rural and underserved areas through supply- and demand-side support.

Local fuel refining, $750m loan will stabilize naira – Report