In a significant development, the Central Bank of Nigeria (CBN) is making strides in resolving the foreign exchange forward contracts backlog, bringing a ray of hope to the Nigerian economy. The backlog, stemming from a period of low oil prices and the subsequent departure of foreign investors from local assets, has plagued the country with chronic dollar shortages. The CBN has now initiated measures to alleviate this issue, which has been a source of concern for the business community and the nation as a whole.
International banks such as Citigroup, Standard Chartered, and Stanbic IBTC have already witnessed progress, with reports indicating that the CBN has successfully cleared over 75% to 80% of outstanding matured FX forwards in specific banks. Several banks, including Citigroup, Stanbic, and Standard Chartered, have received payments for their forward contracts, with over $1 billion in total payments distributed, and further payments expected in the coming weeks.
While some banks have received their entire owed amounts, others have been paid up to 80% of their obligations. This initiative, led by the CBN, is not just a solution or intervention; it’s the fulfillment of the CBN’s legally bound obligations to pay out FX forwards that have matured.
The payments made by the CBN are expected to help offshore in settling outstanding positions in correspondent banks, ultimately freeing up trade lines and boosting the nation’s credit ratings. This positive development comes following the Finance Minister’s announcement of an expected $10 billion inflow to improve FX market liquidity, offering relief to local lenders grappling with chronic dollar shortages.
Gabriel Idahosa, Deputy President of the Lagos Chamber of Commerce and Industry, believes that this move not only brings back confidence in the traditional market but also restores the confidence of portfolio investors and international airlines. It has the potential to attract foreign direct investments and promote the strength of the national currency.
As a result of these developments, the naira experienced a gain against the US dollar, offering some respite to the black market. This news is particularly welcomed by the manufacturing sector, which has struggled to procure raw materials and machinery due to the FX backlog.
While the source of these dollars remains a topic of speculation, the actions taken by the CBN have significantly improved FX management, as noted by Wale-Smatt Oyerinde, Director-General of the Nigeria Employers’ Consultative Association. The sustainability of this FX backlog clearance will depend on the guarantee of inflow from all available sources, including increased foreign direct investment.
With continued reforms and the focus on stable growth, Nigeria is primed to capitalize on other opportunities for FX supply and overall economic development.
