The Central Bank of Nigeria (CBN) has revealed that a forensic audit of $7 billion worth of overdue foreign exchange (FX) transactions has exposed irregularities affecting approximately $2.4 billion of these transactions. This revelation comes amidst Nigeria’s ongoing struggle with crippling dollar shortages that have led to the sharp depreciation of the country’s currency, the naira, to historic lows.
The audit, conducted by renowned management consultants Deloitte, was a concerted effort to identify and address any invalid transactions within the FX backlog, which has been a key factor contributing to the naira’s decline in value. The irregularities unearthed during the audit range from missing documentation to the involvement of non-existent entities, further highlighting the challenges faced by the Nigerian financial system.
Central Bank of Nigeria Governor Olayemi Cardoso discussed these findings during an interview with local channel Arise TV. He emphasized that the irregularities discovered include instances where unauthorized beneficiaries received foreign exchange allocations. Cardoso, who has been at the helm of the CBN, emphasized that these non-compliant transactions would not be honored by the central bank.
Cardoso also provided insights into the progress made in resolving the FX backlog. He stated that approximately $2.5 billion of the backlog, spanning various sectors such as aviation, manufacturing, and energy, has already been settled. The central bank governor expressed confidence that the remaining $2.2 billion would be swiftly addressed, signaling a positive outlook for resolving this critical issue.
To address the ongoing FX crisis and restore stability to the Nigerian financial landscape, the CBN recently implemented a series of measures. These measures include imposing restrictions on the amount of foreign currency banks can hold. Banks are now subject to limits, with net open positions capped at 20% of shareholders’ funds for short positions and a zero limit imposed for long positions. Furthermore, banks were instructed to promptly liquidate excess foreign currency holdings.
In addition to these restrictions, the central bank has mandated that banks maintain sufficient liquidity to cover maturing foreign exchange obligations. Moreover, the CBN encourages financial institutions to establish forex contingency funding arrangements with other banks. These measures are designed to enhance dollar liquidity and facilitate smoother operations in the foreign exchange market.
Governor Cardoso highlighted the central bank’s proactive approach to addressing supply-side challenges within the FX chain. By focusing on both regulatory measures and operational enhancements, the CBN aims to create a more stable and efficient FX market.
Under Cardoso’s leadership, the CBN has committed to pursuing a more conventional monetary policy approach. A key objective is to reduce inflation, which reached a 27-year high of 28.92% in December. The central bank aims to bring inflation down to 21%, underscoring its dedication to achieving economic stability.
As Nigeria continues to grapple with FX challenges and strives for economic stability, the central bank’s actions and policies, along with the resolution of the FX backlog, will play a pivotal role in shaping the nation’s financial future. The commitment to addressing irregularities and enhancing liquidity demonstrates the CBN’s determination to navigate these turbulent waters and restore stability to Nigeria’s financial system.
