The Central Bank of Nigeria (CBN) has commenced the clearing of matured forward foreign exchange contracts with an unspecified number of banks in the country.
The latest development is a key step targeted by the government to help stabilise the naira.
The amount of overdue forward payments is estimated at about $6.7 billion, according to government officials. Clearing that backlog has weighed on the naira, which fell to a record low of almost 1,000 per dollar on the official market this week.
The CBN took steps on Wednesday to clear the maturing contracts with the banks, spokesman Isa Abdulmumin said by phone from the capital, Abuja, yesterday but was unable to comment on how much of the forward contracts had been cleared.
The scarcity of dollars in Nigeria has forced buyers looking for hard currency onto the streets of the nation’s cities, where the naira changed hands at 1,167 per dollar on Thursday. Inflation in Africa’s biggest economy is also at the highest in more than 18 years, prompting economists to predict that the central bank will raise interest rates again at its next meeting.
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Meanwhile, the naira yesterday gained N55 against the United States dollars at the black market controlled by Bureau de Change dealers.
The currency opened N1,220 per dollar but appreciated by 4.5 per cent to trade at N1,165 yesterday.
The development is linked to the report that the Central Bank of Nigeria has settled over 75 per cent to 80 per cent of outstanding matured foreign exchange forwards owed to banks.
The naira has seen its worst depreciation since the Bola Tinubu’s administration initiated a managed float of its foreign exchange market with the aim of attracting investors.
However, the policy failed to achieve its purpose due to the lack of trust of investors who have their forex trapped in the country. Foreign banks and Nigerian banks are owed by the CBN over $7bn in FX Forward deals.
“The CBN has started paying the FX backlogs to banks. So far, 14 banks have been paid,” Isah Abdulmumin, CBN Director, Corporate Communications told Reuters.
Last month, the Minister of Finance and Coordinating Minister for the Economy Wale Edun said the government was expecting $10bn inflows to improve liquidity in the Nigerian foreign exchange market.
Reacting to the development, Kalu Aja, a financial analyst said “Nigerian banks took dollars from investors and importers years ago and invested with CBN in a market called the Forward dollar Market.
Contracts in that Forward market came due, but CBN could not pay. Now CBN is paying down that dollar obligation the good news, if true. This allows Nigerian banks to repay their investors and borrow more to boost trade.”
