• Sunday, February 25, 2024
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Naira continues freefall despite CBN’s $3.82bn backlog clearance

The naira has extended its slide against the United States dollar despite the clearing of about $3.82 billion of foreign exchange backlog by the Yemi Cardoso-led Central Bank of Nigeria (CBN).

The CBN released additional $500 million to various sectors on Monday, barely a week after it paid about $2 billion to settle outstanding FX backlogs across manufacturing, aviation and petroleum sectors.

Hakama Sidi-Ali, CBN acting director of corporate communications, announced this in a statement without providing details about the sectors to which the money was released.

She reiterated the apex bank’s commitment to settling all legitimate FX backlogs within a short time frame.

Early this month, the CBN announced the disbursement of about $61.64 million to foreign airlines through various banks, demonstrating ongoing efforts to decrease remaining liabilities to airlines.

The apex bank began to clear the backlog of foreign exchange forward contracts in November 2023, when it delivered on over 75 percent to 80 percent of outstanding matured FX forwards in some banks, including Citigroup ($72 million), Stanbic ($125 million) and Standard Chartered ($63 million).

“They also cleared all outstanding from around 10 small banks with less than $10 million each,” a source said.

Four banking sources said the banks were paid varying amounts totalling about $1 billion, adding that the payments would continue.

On Monday, the naira fell to as low as N1,445 to the dollar on the parallel market, known as the black market. During the intraday trading on Friday, naira depreciated to N1,421 on the official market.

What this means is that households will continue to see the prices of imported goods, such as food, fuel, and electronics, rise as importers pass on the increase in costs. This can put a strain on household budgets, especially for those on low incomes, analysts say.

The value of naira in their pockets decreases, meaning they can buy less with the same amount of money. This can lead to a decline in living standards.

Nigeria has seen exits of multinational companies, with pharmaceutical giant GSK Plc and consumer-goods heavyweight Procter & Gamble Co. being notable names, as the country grapples with severe hard currency shortages. Importers are facing increasing challenges in bringing in essential goods, leading to concerns about the impact on both businesses and the broader economy.

“We need to interrogate the proportion of the transactions in the parallel market and the proportion in the official market. That will enable us to know how bad the situation actually is. All the alarm is about the parallel market; so we need to interrogate that so that we do not raise a false alarm,” Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said.

He said the clearing of the backlog has made it difficult for the CBN to intervene directly in the official market, adding that “once they are able to clear that significantly, they will now have more dollars to intervene in the market directly”.

“At that point, we will begin to see the effect of the CBN’s intervention in the market. But right now the priority is to clear the backlog. Imagine if the CBN is able to intervene with $1 billion every month, we will not be talking about this kind of story about FX. Under Godwin Emefiele, former CBN governor, we were having about $1.5 billion FX intervention every month. But under this administration, it has been extremely difficult to match that kind of intervention because the external reserves have been depleted,” he said.

He added: “The little they are getting, they are prioritising the backlog, which is a good thing. I believe that we need to be a bit more patient with them. The moment they finish with the backlog, we will begin to see normalisation of the situation, keeping tap on oil production. Crude oil price has gone back to $83 because of global conflicts.

“If we are able to keep the momentum in terms of oil theft and increasing the output, that should also reflect in our reserves, with what is happening in the fiscal front; revenue is increasing now, fiscal deficit is dropping and that should also help to improve the outlook for exchange rate.”

CBN spokesperson Sidi-Ali said the bank had begun implementing a comprehensive strategy to improve liquidity in the FX 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 FX markets over the years,” she said.

According to her, the ongoing FX market reforms are designed to streamline and unify multiple exchange rates, foster transparency, and reduce arbitrage opportunities.

She also expressed confidence that a stable exchange rate would boost investor confidence and attract foreign investment.

She urged all participants in the market to play by the rules, saying transparency in the market would enable the fair determination of exchange rates and, by extension, guarantee stability for businesses and individuals.