CBN Likely To Relax Restriction On Domiciliary Account Deposit This Week

STRONG indications emerged at the weekend that the Central bank of Nige­ria (CBN) is likely to relax the restrictions on deposits of cash into domiciliary ac­counts.

The apex bank had few months ago banned deposits of cash into domiciliary ac­counts and ordered banks to stop accepting deposits into domiciliary accounts or withdrawal there from last year, as part of the new forex policy.

This is coming at a time when the Federal Govern­ment may buckle in its battle to defend the Naira using capital controls, following intense external pressures.

Daily Sun gathered that having achieved what was intended by the restriction, the CBN will now allow domiciliary account holders to deposit cash into their ac­counts, instead of accepting only e-transfer. It was not clear as at the time of going to press whether withdrawal from domiciliary accounts will also be relaxed in the new forex regime.

Meanwhile, the Federal Government may succumb to pressure from outside the country to devalue the naira following the pressure on the foreign reserve. Last week, Nigeria’s external reserve lost a whopping $112 million, even though the Central Bank of Nigeria (CBN) had already shut out about 41 items from its for­eign currency windows. But the current pressures on the President Muhammadu Bu­hari government seemed to have been intensified after the International Monetary Fund (IMF) delegation led by its Managing Director, Ms Christine Lagarde, end­ed its four-day official visit to the country, where fiscal/ monetary policy flexibility and subsidy related issues topped the agenda.

“ I am not in Nigeria to ne­gotiate loans with condition­ality,” Lagarde said, advis­ing however, that to build the external reserve, the regula­tors have to make additional exchange rate flexibility, either up or down to help soften the impact of external shocks. She also urged the government to further raise its VAT rates, stressing that Nigeria currently pays one of the lowest rates in Africa.

But despite assurances by both the CBN Gover­nor, Godwin Emefiele and President Buhari to resist pressures to further devalue Naira after about 27 per cent devaluation in the last one year, indications are that they may be forced to capitu­late soon to secure the global business community’s sup­port for the 2016 budget.

This is more so as the Ni­gerian government intends borrowing an estimated N900 billion from the in­ternational financial market to finance its NI.84 trillion deficit, which stakeholders believe may not be feasible if it totally rejects the IMF’s advice. That perhaps, may be a major consideration for more devaluation in the months ahead.

Already, against the back­drop of its falling revenue profile, Nigeria’s foreign re­serve took a big hit last week losing a whopping $112 mil­lion to close at $28.960 bil­lion despite government’s capital control imposed since June 2015.

The $112 million fall in the nation’s reserve, was about the highest since the CBN began implementation of the bank verification num­ber (BVN) for forex transac­tion.

Managing Director, Chief Economist, Africa Global Research of Standard Char­tered Bank, Razia Khan, has said the renewed downward pressure in Nigeria’s exter­nal reserve balances and fall­ing oil prices call for more liberalised forex regime, as Nigerian businesses suffer in an increasingly forex con­strained environment.

She hinted that although no official forex assumption was mentioned in the bud­get, many believe that Nige­ria will need a weaker forex rate to meet its official deficit goal of 2.16per cent of GDP in 2016.

Khan also noted that the inflation outlook will be an important driver of the pol­icy decisions taken by the Nigerian authorities in the coming weeks, as well as the likely sequencing of eco­nomic reforms since the $38 per barrel benchmark used by President Buhari for the 2016 budget is already under threat with Brent crude sell­ing at about $33 per barrel last week.

On the other hand, Man­aging Director of Cowry Asset Management Limited, Johnson Chukwu lamented that the danger associated with the sharp drop in re­serve was that it might fall to a certain threshold where the country may not be able to meet its foreign currency obligations.

According to him, this could trigger loss of confi­dence by the country’s trade partners, who may insist on cash collateral/cover before establishing letters of credit for Nigeria’s importers.

“The drop in the foreign reserve may not be uncon­nected with the negotiation of letters of credit estab­lished for the importation of PMS, which were funded from the N413 billion allo­cated to payment of petrol subsidy in the recently ap­proved supplementary bud­get. Other factors that may have contributed to the out­flow include remittances of proceeds of ticket sales by airlines and payment of oth­er matured foreign currency obligations,” he explained.

Chukwu, however, ex­pects that the government will take appropriate mea­sures to diversify the sourc­es of the country’s foreign exchange earning.

Similarly, another ana­lyst at WSTC, Olu Oni, ex­plained that the danger as­sociated with the depletion of reserve is that it will con­tinue to aggravate the pres­sure on exchange rate, as it also affects perception about the ability of our financial institutions to meet FX ob­ligations.

“At a time other countries are building back reserve, Nigeria has increased its consolidated spending with­out a corresponding increase in generating revenue,” he remarked.

With respect to the 2016 budget, he said the declining oil prices, already below the 2016 budget assumptions, will, no doubt, put pres­sure on the performance of the budget if oil price stays at the current level for too long. According to him, the ability of the Federal Gov­ernment to achieve its am­bitious revenue projections from the non-oil sector amid current restrictions on ac­cess to forex, also remains a major concern.