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FT says Single Treasury Account could spark financial outflows from Nigeria

17 Sep 2015, 05:33 pm
Financial Nigeria
FT says Single Treasury Account could spark financial outflows from Nigeria

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With implementation of the presidential directive, even less money will be in circulation, according to Mohammed Garuba, head of asset management at Cardinal Stone, an investment bank in Lagos.

Nigeria's President Muhammadu Buhari

The directive by President Muhammadu Buhari that all the institutions of the Federal Government should transfer their accounts to the Central Bank of Nigeria by yesterday, under a Single Treasury Account (TSA) regime, is believed to be a potential trigger of financial outflows from Nigeria.

This concern was expressed by The Financial Times. The newspaper noted that the implementation of the TSA is a “significant boost” to Buhari’s anti-corruption credentials. The new policy would see over $6 billion of public funds transferred from local banks to the country’s central bank, and it will help in addressing the lack of oversight in government revenue.

However, not all financial analysts are convinced of the merits of the directive. According to The Financial Times, they warn that such rapid outflows will worsen a looming credit crunch facing Nigeria’s financial sector.

“If that happens in one day clearly what you’re going to see is significant shock in the system where there is a serious lack of liquidity and interest rates which are already very high will go even higher,” an executive at one of Nigeria’s larger commercial banks was quoted as saying.

“There is very little lending going on in the system and in this type of interest rate environment the economy is starved of credit and this affects the ability of companies to invest.”

Meanwhile, JPMorgan’s recent decision to remove Nigeria from its GBI-EM index has already triggered heavy outflows from the $2bn of local bonds the index tracks as well as a broader stock market sell-off.

With implementation of the presidential directive, even less money will be in circulation, according to Mohammed Garuba, head of asset management at Cardinal Stone, an investment bank in Lagos. He said this would add to the upward pressure on domestic bond yields.


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