Wilson Center Latin America Program’s Post

  In the framework of its regular review of ST political risk, Credendo has upgraded four countries and downgraded six countries. In the case of #Bolivia, the downgrade is mostly due to a dangerous drop in gross foreign exchange reserves and a complicated split inside the ruling party Movimiento al Socialismo. In the #Maldives, despite higher tourist arrivals, low foreign exchange reserves and ongoing pressure on the country’s liquidity level explain the downgrade. #Georgia’s ST political risk rating has been upgraded by one notch, reflecting the sharp increase in current account receipts. Find more details here: https://bit.ly/49C9vw2 #Upgrades #Downgrades #Seychelles #Suriname #Tajikistan #Ecuador #TimorLeste #TrinidadAndTobago #Uzbekistan #PoliticalRisk #EconomicRisk #CreditInsurance #Export

Argentina is in a difficult spot. In the last 3 months in office, the previous government used the foreign exchange reserves mainly to bolster both the official and the parallel exchange rate markets. In the meantime, Imports were notably financed by import financing while exports were hit by a drought. Hence, President Milei inherited depleted foreign exchange reserves and a huge short term external debt backlog. He took some important reforms but it remains a very rock path ahead as illustrated by the unrest and recent withdrawal of already water downed reforms in Congress. More information can be found in my recent analysis on Argentina: https://lnkd.in/dHZPTaRn

Nigeria’s ambitious foreign exchange reforms, spearheaded by President Bola Tinubu, have failed to yield the desired outcomes, as evidenced by the continued depreciation of the Naira and a decline in external reserves. Despite efforts to implement market-driven exchange rates and address economic challenges, critics argue that policy execution has been flawed, leading to adverse effects on the economy. Tap the link in our bio to read more. #NairaDepreciation #ForexReforms #NigeriaEconomy #CBN #economicreforms

The floating of the Nigerian naira on the international market can have significant effects on the common man, both positive and negative. Let's explore these effects: **Positive Effects:** 1. **Increased Export Competitiveness:** A floating exchange rate can lead to a depreciation of the naira, making Nigerian goods and services cheaper for international buyers. This can boost exports, particularly in sectors such as agriculture, manufacturing, and services, leading to increased economic activity and job creation. 2. **Inward Remittances:** For Nigerians living abroad and sending money back home, a weaker naira can result in higher remittance inflows. As the value of the naira decreases relative to other currencies, remittances sent in foreign currency can translate to more naira for recipients, providing a financial lifeline for many households and supporting consumption and investment. **Negative Effects:** 1. **Rising Import Costs:** A depreciating naira can lead to higher import costs for essential goods such as food, fuel, and pharmaceuticals. This can drive up inflation, erode purchasing power, and increase the cost of living for the common man, particularly those on fixed incomes or living below the poverty line. 2. **Fuel Price Hikes:** Nigeria relies heavily on imported petroleum products to meet domestic fuel demand. A weaker naira can result in higher import costs for refined petroleum products, leading to fuel price hikes in the domestic market. This can have ripple effects across the economy, increasing transportation costs and the prices of goods and services. 3. **Foreign Debt Servicing:** Nigeria's external debt is denominated in foreign currency, such as the US dollar and euro. A depreciating naira can make it more expensive for the government to service its foreign debt obligations, diverting resources away from social spending and infrastructure development and potentially leading to austerity measures that negatively impact the common man. 4. **Currency Volatility:** A floating exchange rate regime can lead to currency volatility, with the value of the naira fluctuating unpredictably in response to market forces. This can create uncertainty for businesses and consumers, making financial planning and investment decisions more challenging and potentially deterring foreign investment in the Nigerian economy. In summary, the effect of a floating naira on the international market on the common man is complex and multifaceted. While a depreciating currency can benefit exporters and recipients of remittances, it can also lead to higher import costs, fuel price hikes, increased inflation, and currency volatility, all of which can negatively impact the purchasing power and well-being of the average Nigerian. As such, policymakers must carefully balance the advantages and disadvantages of a floating exchange rate regime to ensure that the benefits are maximized while minimizing the adverse effects on the common man.

I wrote a policy note with Agora Policy on how the government should be thinking about trade and investment in the current global order. What is clear is that Nigeria needs external markets - we must sell to the rest of the world. Nigeria will not get rich by producing solely for local consumption because we are too poor. We were richer in income per capita terms in the 2000s to mid 2010s because we exported so much oil that our industrialisation strategy (import substitution) did not matter. Now that we can barely export oil, it is obvious that we cannot continue our obsession with import substitution as Nigerians will only get poorer. Neither can we rely on infrastructure led growth. This policy note looks at the options available to policymakers.

Nigeria's Central Bank (CBN) has taken a step to increase liquidity in the country's foreign exchange market by allowing international oil companies (IOCs) to sell more of their earnings in Nigeria.* This is according to a recent article in The Punch Newspaper. In February 2024, the CBN limited the amount of money IOCs could transfer from their Nigerian operations directly to their overseas parent companies. This decision aimed to address a lack of foreign currency (forex) circulating in Nigeria's domestic foreign exchange market. New Policy: The CBN is now allowing IOCs to sell 50% of their earnings from Nigerian oil exports directly to authorized dealers in the Nigerian foreign exchange market.  This can be used to settle financial obligations within Nigeria or be purchased by individuals or businesses needing foreign currency. The remaining 50% can still be used to settle financial obligations in Nigeria or be transferred to overseas accounts after 90 days. CBN's Goal: By allowing IOCs to sell more of their earnings in Nigeria, the CBN hopes to increase the availability of foreign currency in the domestic market. This, in turn, could help stabilize the exchange rate and boost economic activity. Potential Impact: Increased forex liquidity could benefit Nigerian businesses that rely on imports.  A more stable exchange rate could also reduce inflation. However, the policy might raise concerns among IOCs about access to their funds. Unresolved Issues: The article mentions that the CBN received requests for clarification on the types of financial obligations that can be settled with the retained 50% of earnings. Overall, this policy change by the CBN represents an attempt to balance the needs of international oil companies with the need for a healthy foreign exchange market in Nigeria.* The long-term impact of this policy will depend on how it is implemented and how it affects both the forex market and the oil & gas industry. #Nigeria #CBN #ForeignExchange #OilMarket #IOCs #Liquidity #ExchangeRate #Business #Economy #PunchNewspaper https://lnkd.in/d4HDHUAB

ICAN offers solutions to exchange rate volatility By Victor Gbonegun The Institute of Chartered Accountants of Nigeria (ICAN), yesterday, warned that the much-anticipated foreign exchange stability and economic growth may remain elusive if lasting solutions are not provided in the short, medium and long-term, as against the quick fix interventions by the Federal Government. It noted that the Nigerian National Petroleum Company Limited’s (NNPCL) $3 billion Afrexim Bank borrowing to fix foreign exchange liquidity might prove insufficient. ICAN, therefore, recommended short-term measures like postponement of implementation of non-critical dollar-denominated components of the 2023 budget until the foreign exchange situation improves, as well as the need for government to address speculative demand for dollar through confidence-building strategies, and incentivising of Diaspora remittances through formal channels. Its 59th president, Dr. Innocent Okwuosa, who addressed journalists in Lagos, explained that while the introduction of a price verification system in respect of ‘Form M’ by the government is commendable, there should be easy access to foreign exchange by genuine users, with minimal documentation. Form M is a mandatory statutory document to be completed by all importers for importation of goods into the country. According to him, the government also needs to institute accountability and transparency within the oil industry and foreign exchange market, establish whistle-blowing lines to report banks involved in round tripping and activate relevant laws to sanction persons or institutions behind dollarisation of the economy. On the medium-to-long term measures for the demand side, he suggested that the government should tackle inflation and reduce currency substitution on account of low purchasing power of the Naira, and encourage patronage of made-in-Nigeria goods, using enabling laws. https://lnkd.in/dV3vi9uZ

Despite Nigeria increasing its total trade value to N71.89 trillion in 2023, the trade balance– which is slightly surplus is not enough to solve Nigeria’s foreign exchange problems, amid high demand for dollars findings have shown. Read more The ICIR https://lnkd.in/dX6XVPiU

Namibia’s foreign reserves edge closer to N$50 billion The preliminary stock of international reserves stood at N$49.7 billion as of 31st January 2024, slightly above the level of N$49.0 billion reported previously partly due to SACU receipts, the Bank of Namibia (BoN) has said following its Monetary Policy Committee (MPC) first bi-monthly meeting for 2024. To continue safeguarding the peg between the Namibia Dollar and the South African Rand while supporting the domestic economy, the MPC last week announced that it had decided to keep the Repo rate unchanged at 7.75 percent. https://lnkd.in/diTEGRPN

Kenya’s Foreign Exchange Reserves Exceed KSh 1 Trillion as Shilling Remains Stable Kenya's foreign exchange reserves have surged past KSh 1 trillion, totaling USD 8,321 million as of June 20, according to reports from the Central Bank of Kenya (CBK). This substantial increase from USD 6,975 million in late May highlights a significant boost in the country's ability to cover imports, now standing at approximately 4.3 months of import cover. The CBK emphasized that these reserves comfortably meet the statutory requirement of maintaining at least 4 months of import cover, ensuring stability in the country's foreign exchange market. This development underscores Kenya's strengthened position in managing external economic pressures, contributing to the overall stability of the Kenyan shilling against major global currencies. The rise in foreign exchange reserves reflects continued efforts by the CBK to bolster Kenya's economic resilience amid global uncertainties, positioning the country favorably in managing trade imbalances and external shocks. As Kenya navigates economic recovery post-pandemic, the robust foreign exchange reserves provide a crucial buffer against potential volatility, supporting investor confidence and sustainable econom... #ForeignExchange #Kenya'sShilling