Nigerian president Bola Tinubu has vowed to clear a gaping foreign exchange future contracts backlog which has drained investor confidence in the country’s bold FX reforms.
“All foreign exchange future contracts will be honoured by this government,” Tinubu said at the ongoing Nigerian Economic Summit Group (NESG) conference in Abuja.
“I assure you we have a line of sight to the foreign exchange we need to refloat this economy. And we will get it,” Tinubu said.
The Central Bank of Nigeria (CBN) sold what is called forward contracts to several Nigerian businesses with the promise of dollars at an agreed price in future.
The banks opened Letters of Credit (LCs) on the back of the forward contracts, which were then used to buy goods from foreign suppliers.
The CBN has however not settled the contracts since February 2023 which means there’s a backlog of around $3 billion, according to sources familiar with the matter.
The broader backlog, which includes unsettled foreign investors’ contracts, is estimated to be about $10 billion.
Worried by the growing backlog and with no assurance of when it will be cleared, correspondent banks are pulling the plugs on local Nigerian banks.
Bankers say the CBN’s failure to clear the dollar backlog has put them in a very tight FX liquidity position and has forced them to suspend several transactions including school fees and Personal Travel Allowance applications.
That has piled pressure on the embattled naira which has crossed the N1000/$ mark in the parallel market and could well be on its way to N2000/$.
The official rate has also collapsed to around N1000/$ on the back of the CBN’s newfound tolerance for the naira to weaken some more after a 40 percent plunge in June as well as continued demand for scarce dollars.