The Central Bank of Nigeria (CBN) said it has made tranche payments to 31 banks to clear the backlog of foreign exchange forward obligations.
The apex bank also disclosed that it has set up foreign exchange frameworks to address the FX issues.
Yemi Cardoso, governor of the CBN disclosed this on Friday at the bankers’ dinner in Lagos.
What Cardoso says
The CBN governor said:
- “We have already witnessed improvements in FX market liquidity in recent weeks, as the market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations.
- “We have been subjecting these payments to detailed verification to ensure only valid transactions are honoured. In a properly functioning market, it is reasonable to expect significant FX liquidity, with daily trade potentially exceeding $1.0 billion.
- “We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies.”
More Insight
The value of the Nigerian currency has been steadily declining as the country struggles with foreign exchange illiquidity and the inability to pay down its forex backlog.
Recent remarks by President Bola Tinubu indicate that he intends to pay off the almost $7 billion in outstanding foreign exchange obligations owed to banks.
At the 29th Nigerian Economic Summit in Abuja, Tinubu acknowledged the challenges faced by the corporate sector in the financial markets and pledged additional foreign exchange liquidity.
It was also learned that the CBN has started paying off some of its foreign exchange debts with banks like Citibank, Stanbic IBTC, and Standard Chartered.
This breakthrough is expected to alleviate the foreign exchange backlog, which has been eroding investor trust in the Nigerian economy.
Despite the CBN’s best efforts to alleviate pressure and eliminate the forex backlog, problems persisted with the efficient disbursement of the FX.
Foreign airlines recently disclosed that about 90% of their $783m trapped funds were yet to be paid.
Also, EIU said that a currency float may not succeed over 2024-28, as the CBN “lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, valued at over US$6bn, which will keep foreign investors unnerved.”
However, the CBN governor has said that the payment of obligations will continue until the FX backlog is cleared completely.