As the new foreign exchange policy regime dawned yesterday, analysts are confidence that the implementation will boost foreign investors’ appetite to invest more funds in the country’s projects. There is however a bad aside for businesses or individuals that are saddled with loans denominated in foreign loans in foreign currencies.
According to Feyi Fawehinmi who wrote in the BBC Africa, “Ultimately, Nigerians have reason to hope that the worst of the last year is now over.
“With a floating exchange rate, foreign investors can have more confidence in the country and Nigeria should see an uptick in the foreign investments it so desperately needs”.
The CBN says that 10.1 per cent of all the loans in Nigeria’s banking system have gone bad – in other words they will never be repaid. A lot of these loans were made in foreign currency and given to local oil and gas companies when crude oil prices were $100 per barrel.
The oil and gas industry is Nigeria’s main foreign exchange earner
Once the naira starts to float, banks will have to adjust the naira value of these loans on their books. In turn, the increased burden on the borrowers is likely to push more of them into bad loan territory.
The BBC News also said that inflation should eventually fall. It said, latest figures from the National Bureau of Statistics (NBS) show that inflation is rising steadily in Nigeria. Given how Nigeria is dependent on imports for a lot of basic items, a floating currency, which is expected to lead to a devaluation, is likely to further increase prices, at least in the short-term.