IMF predicts further crash in Nigeria’s foreign portfolio

The International Monetary Fund says Nigeria’s portfolio investment may further crash by $11.4bn in 2020 as the coronavirus disease eats deep into the fabric of the country’s economy.

Portfolio investments are in the form of a group of assets, including transactions in equity, securities, such as common stock, and debt securities, such as banknotes, bonds, and debentures.

They are passive investments, as they do not entail active management or control of the issuing company. Unlike, Foreign Direct Investment (FDI), foreign investors here have a relatively short-term interest in the ownership of these passive investments.

According to a report by the world’s finance body, Nigeria’s portfolio investment would drop from the $9 billion recorded in 2019 to a deficit of $2.4 billion by the end of 2020.

Shedding more light on what the future holds for the Nigerian economy, IMF explained that the liquidity based indicators of the nation remain a concern, as they make Nigeria’s low debt-to-GDP ratio highly vulnerable to shocks.

Some of the liquidity based indicators that remain a concern for IMF are the Cash Reserve Ratio (CRR), which several Nigerian banks had frowned at, Loan Deposit Ratio (LDR), and money supply (M2). It stated:

“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.

Also, the global lender added that the nation’s oil and gas exports are expected to decline by at least $26.5 billion, as it warned that Nigeria remained exposed to rising risks, particularly in 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.

With uncertainties in economic indices and parameters, a Council Member, Nigerian Stock Exchange, (NSE), Adebayo Ajayi, agree with IMF that the nation would witness dearth of FPI in 2020.

He explained that the state of the nation’s foreign reserve and the value of crude oil are major attractions of foreign investors to the country. 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.”