CBN Clears FX Backlog, Boosts Naira and Trade

The Central Bank of Nigeria (CBN) has started to settle the outstanding matured foreign exchange (FX) forwards owed to various creditors, according to sources familiar with the development.

This is a significant step in promoting stability and confidence in Nigeria’s FX market, as the CBN had accumulated a backlog of FX obligations estimated at $6.7 billion due to the impact of the COVID-19 pandemic and the decline in oil prices.

The payment of the FX forwards, which are contracts to buy or sell foreign currency at a predetermined price and date, was done secretly and gradually, starting from Wednesday, November 1, 2023.

Three banks, namely Citi Bank, Stanbic IBTC and Standard Chartered Bank, received full payment of their debts, while some other banks received partial payments. The total amount cleared by the CBN is yet to be ascertained, but some sources said it could be as high as $2 billion.

The news of the CBN’s action boosted the value of the naira, which appreciated by 4.27 per cent against the dollar on Thursday, November 2, 2023. The naira traded at an average of 1,120/inLagos,comparedto1,170/ on Wednesday. In Abuja, the average price of the naira against the dollar was 1,200.

The naira’s recovery was also aided by the increase in the supply of dollars in the FX market, as the CBN resumed its weekly Retail Secondary Market Intervention Sales (SMIS) on Wednesday.

The settlement of the FX forwards is expected to have a positive impact on the economy and trade, as it will ease the liquidity constraints faced by many businesses and individuals who rely on foreign currency for their transactions.

The Association of Corporate Treasurers of Nigeria (ACTN), which comprises all corporate treasurers in Nigeria, commended the CBN for its decision, saying it will enhance the credibility and transparency of the FX market. The ACTN also urged the CBN to sustain its interventions and ensure a fair and efficient allocation of FX to all segments of the market.

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