Nigeria’s central bank has pledged to clear a foreign-exchange backlog estimated at about $5 billion within a short space of time as it seeks to attract investment back into the economy and reduce pressure on the naira, which hit a fresh low on Friday.
The lender “released $500 million to various sectors,” of the economy almost two weeks after paying about $2 billion to settle outstanding commitments across industries including manufacturing, aviation and petroleum, it said in an emailed statement on Monday.
The backlog has made the country unattractive to foreign investors as it makes it difficult to repatriate earnings due to the acute dollar shortage. The naira weakened to 1,355 per dollar on the parallel market on Friday, the lowest level since November 2023, according to abokifx.com, a website that collates street rates in Lagos.
The central bank’s statement came after President Bola Tinubu said in a televised interview on Thursday that he had ordered the regulator to clear the backlog within six months. Tinubu, who took office in May 2023, has vowed to revive the economy, which contracted by 1.8% in 2023 amid the fallout of the global pandemic and low oil prices.
The central bank said it had begun implementing a comprehensive strategy to improve liquidity in the Nigerian foreign exchange markets in the short, medium, and long term. “As the governor said, the CBN’s focus is on addressing fundamental issues that have hindered the effective operation of the Nigerian forex markets over the years,” it said.
The forex market reforms are designed to streamline and unify multiple exchange rates, foster transparency, and reduce arbitrage opportunities, the central bank said. It expressed confidence that a stable exchange rate would boost investor confidence and attract foreign investment.
The central bank also lifted the ban on 43 items that were previously restricted from accessing foreign exchange in the official market, such as rice, cement, and textiles. Importers of these items can now purchase foreign exchange in the Nigerian foreign exchange market, the statement said.
The move is expected to ease the pressure on the parallel market, where importers of the banned items had to source dollars at a premium. It could also help lower inflation, which surged to a four-year high of 18.1% in December 2023, driven by rising food and transport costs.
Analysts welcomed the central bank’s actions, but cautioned that more needs to be done to address the structural imbalances in the economy, which relies heavily on oil exports for foreign exchange earnings and government revenue.
“The central bank’s efforts to clear the forex backlog and liberalize the market are commendable, but they are not enough to solve the underlying problem of dollar scarcity,” said Oluwatosin Ojo, an economist at Lagos-based CardinalStone Partners. “The government needs to implement policies that will diversify the economy, boost non-oil exports, and improve the business environment.”
Nigeria, Africa’s largest economy and most populous nation, has been struggling to recover from its second recession in four years, which was triggered by the Covid-19 pandemic and a sharp drop in oil prices in 2020. The International Monetary Fund projects a modest growth of 2.5% for the country in 2024, below the average of 3.4% for sub-Saharan Africa.
Despite the challenges, the central bank said it was optimistic about the prospects of the economy and the forex market. It said it would continue to engage with stakeholders to address the forex backlog issue and achieve its goal of a single forex market. It also urged all participants in the market to play by the rules and ensure transparency in the market.
Source: Bloomberg
