The Chief Executive Officer, Financial Derivatives Company Limited, a Nigeria-based research and financial advisory firm, Mr. Bismarck Rewane, has said recent developments in the global and local economies will force foreign portfolio investors to move more capital out of the country.

As a result, he said the nation’s external reserves would continue to dwindle.

Rewane stated this in the FDC’s latest economic report.

He said, “Reversal of capital flows will intensify, further depleting external reserves. $10bn of Nigeria’s external reserves is ‘hot money’, while invisibles constitute 50.3 per cent of total forex payments.

“We expect further external sector imbalances in a run-up to elections. Equity market imbalance is likely to increase, while stock market correction will continue. All Share Index is expected to dip to two-three per cent.”

The FDC boss said weak growth in Europe would affect the credit lines of the nation’s banks just as he said that on the average, commodity prices had declined by 0.11 per cent.

The cost of Nigerian imports, he added, was unlikely to increase significantly.

He said, “Contraction in money supply growth is expected to continue with the CBN’s tight monetary policy stance. It contracted by 0.97 per cent in February to N15.32tn.”

“The impact of the Cash Reserve Ratio hike has been doused by a saturated market. However, private sector CRR is expected to take effect on April 9.”

According to the FDC boss, major risks to emerging market growth forecasts are sluggish world trade growth, risk premium amid the United States Federal tapering, elevated real exchange rate risks, and less favourable global liquidity.

He, however, said advanced economy recovery was expected to have less impact on export-oriented emerging markets.

Currency depreciations in major emerging markets was neutralised by advanced economies exchange rates, he said.

He said, “Many emerging markets still need foreign money to pay for huge trade deficits. Interest rates hikes will prop up the currency; and this will attract investor money to their bond markets. This may stifle economic growth.”

Rewane recalled that African Development Bank had predicted that sub-Saharan Africa’s growth would reach 6.4 per cent in 2014.

But major headwinds, he said, remained the US Fed tapering, slowdown of the Chinese economy and global market volatility induced by Crimea tensions.

He said that Ghana and South Africa had recently tightened monetary policy in response to the developments. Hence, he noted managing and defending capital flows remained a bigger issue than ever.

Source: Punch (by Oyetunji Abioye)