FX backlog threatens Nigeria’s imports, PwC warns

Amid concerns over the Central Bank of Nigeria’s (CBN) inability to meet foreign exchange (FX) obligations, PricewaterhouseCoopers (PwC) has sounded a warning about the potential impact on Nigeria’s imports.

In its bi-monthly economic outlook report for October titled ‘Impact of Global Economic Trends on Nigeria’s Foreign Exchange and the Way Forward,’ PwC highlights the growing worry surrounding the CBN’s outstanding $7 billion FX obligations to domestic banks, which could erode foreign suppliers’ confidence in accepting letters of credit.

With this looming uncertainty, foreign suppliers may shy away from accepting letters of credit, potentially resulting in reduced imports. The ramifications of this situation could be far-reaching, affecting the availability of essential inputs and goods required for manufacturing and retail/wholesale trade, which, in turn, may exacerbate inflationary pressures and have an adverse impact on the economy.

Statistics from the National Bureau of Statistics (NBS) reveal that in the first half of 2023, foreign imports in Nigeria increased modestly by 3.05 percent, whereas exports surged by a substantial 8.16 percent. This data underscores the significance of addressing the FX backlog to maintain a balanced trade environment.

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PwC also underscored the potential impact on consumers, warning that unsettled FX backlogs could lead to shortages of goods and manufacturing inputs, ultimately contributing to rising prices. “The unsettled FX backlogs may lead to scarcity of goods and inputs for manufacturing and trade leading to further increase in prices,” the report read in part

In the report, the professional services company pointed out that FX inflow may further dwindle due to the global central banks’ increased monetary policy rates, potentially prompting capital reallocation away from Nigeria’s financial market towards markets offering more attractive yields on investments. Consequently, this capital flight may have short to medium-term repercussions on foreign investment flows into Nigeria.

Despite the CBN’s efforts to enhance FX accessibility through measures like the reintroduction of Bureau De Change (BDC) and the adoption of the FX price verification system, PwC predicts that FX scarcity will persist in the near term.