Dollar inflows into Nigeria through International Money Transfer Operators (IMTOs) surged to the highest in at least six years largely on the back of the recent reforms by the Central Bank of Nigeria (CBN).
BusinessDay analysis of the data from the latest quarterly statistical bulletin of the CBN show that dollar inflows rose by 39 percent to $1.07 billion in the first three months of the year, from $771 million in the same period of 2023.
It also grew on a quarter-on-quarter basis from $965.3 million in Q4.
Analysts say this situation is easing the foreign exchange liquidity challenges for Africa’s most populous nation as dollar inflows from abroad, which can be seen as major diaspora remittances, are a major source of FX.
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“The rise in remittance inflow in the first quarter of the year can be attributed to the reforms that were implemented by the central bank aimed at attracting more dollar supply through IMTOs and the liberalisation of the FX market,” Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said.
“A lot of the barriers have been removed and there is no exchange rate barrier anymore as there are more IMTOs.”
The CBN has paid foreign exchange backlog to airlines and foreign investors, stopped interventionist programmes, reduced the number of exchange rate windows, and made dollar access straightforward.
In June 2023, the apex bank merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The liberalisation of the FX regime, as part of measures to revive the economy, led to a large devaluation of the naira.
The currency depreciated from N463.38/$(June 2023) to N1,596.92 as of July 19, 2024. At the parallel market, the naira depreciated to N1,580/$ from 762/$ as of Monday.
Last January, the CBN issued a circular that removed the previous cap on exchange rates quoted by IMTOs.
Before the circular, IMTOs had been required to quote rates within a permissible range of -2.5 percent to +2.5 percent around the previous day’s closing rate of the Nigerian Foreign Exchange Market.
By the end of January 2024, the apex bank further released revised guidelines for the operations of IMTOs. The apex bank increased the application fee for an IMTO licence from N500,000 in 2014 to N10 million in the revised guidelines. This is an increase of about 1,900 percent in about 10 years.
The CBN also established a minimum operating capital requirement for IMTOs at $1 million for foreign entities and an equivalent amount for local IMTOs.
Also, IMTOs were barred from purchasing foreign exchange from the domestic market to fulfil their obligations.
However, with a recent circular, the ban was lifted, and IMTOs can now trade on the official market.
Gbolahan Ologunro, portfolio manager at FBNQuest, said the reforms encouraged more people to explore official channels (going through IMTOs) for bringing in dollars into the economy.
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“That was also supported by the fact that the spread between the official market and parallel market narrowed significantly so people preferred using IMTOs because the safety of funds was guaranteed,” he said.
Ologunro noted that the recent changes in the current market entail a widened spread between the official market and parallel market rate, which means the moment arbitrage opportunities present themselves again, there will be less incentive for people to explore the use of IMTOs for dollar inflows.
“That is the key downside factor that will limit the inflow of dollars through the IMTOs, but as long as the government can step up to narrow that gap, then the room for arbitrage will be eliminated and there is no incentive to use the parallel market and they will bring in inflows,” he said.
