• Saturday, March 02, 2024
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BusinessDay

Why CBN should not use dollar trickles to clear backlog

Nigeria’s path to huge dollar inflow riddled with hurdles

The Central Bank of Nigeria (CBN) will do well to not use the small trickles of dollar inflows it is managing to secure to clear a problematic backlog that requires almost three times more to resolve, according to experts.

The CBN’s long-standing battle with the FX backlog seems nearing its endgame, with loans and inflows offering a glimmer of hope.

Yet, while the temptation to simply “throw money at the problem” using these incoming dollars might be strong, a more nuanced approach is needed.

Bola Onadele Koko, CEO of FMDQ Group, in a recent interview with BusinessDay said the CBN should explore creative ways to clear the FX backlog. He mentioned using the Brady bonds method.

“ I hear of inflows of two billion, three billion coming in, you shouldn’t even use those to clear the backlog, you have to think of how to leverage that. How about using $5 billion that you have to buy a 30-year zero coupon treasury that takes you to about 15 billion dollars, use that investment ($15 billion) collateral to borrow $15 billion today. You have to look for creative ways to clear the forwards,” he said.

The CBN has sought various avenues to address the issue, including seeking loans from international institutions like Afreximbank and the World Bank and some other sub-lenders including VITOL, Guvnor, one of the world’s largest energy trading houses by turnover, Sahara Energy Group, Oando and the United Bank for Africa which chipped in $100 million.

As of August last year, the FX backlog was estimated to be between seven to ten billion dollars.

In November 2023 (CBN) said it has set up foreign exchange frameworks to address the FX issues and has cleared the backlog with 31 banks. After this, there were reports of it clearing some of the backlogs.

Nigeria’s foreign external reserves increased on January 3 when it received part of the $3.3 billion Afreximbank loan, which helped boost its reserves.

Wale Edun, minister of finance and coordinating minister of the economy, revealed this week that that the central bank puts the current backlog at about $5 billion and is seeking as much as $1.5 billion from the World Bank to ease dollar shortages and may tap the Eurobond market later in the year if rates move sufficiently lower.

Even if all of the World Bank support was used to settle the backlog, there would still be an outstanding $3.5 billion.

“We need to clear the backlog, it has been there for three years once it’s cleared even international banks will have the confidence to deal with Nigeria, “Ayodele Akinwunmi, the relationship manager of FSDH Merchant Bank me that the priority must be clearing the backlog which he

“There was a time the government was talking about selling crude oil forwards to enable them prioritise the backlog, that’s part of the ways to do it,” he said, “Whatever solution that can ensure the backlog is cleared is welcomed, but clearing it should be the priority.”