Naira Depreciates Further on Parallel Market Despite $2.25bn FX Lifeline

  Analysts say funding inadequate amid huge backlogs

James Emejo in Abuja and Nume Ekeghe in Lagos

The Naira has continued to depreciate against the US Dollar despite the Central Bank of Nigeria (CBN) receiving the Afreximbank’s $2.25 billion credit to support the settlement of foreign exchange (FX) backlogs and douse pressure on the local currency.

The nation’s currency depreciated to N1,245 to a dollar on the parallel market yesterday. It had closed at N1,215/$, N1,220/$ and N1,225/$ on January 2nd, 3rd, 4th, 2024, respectively on the parallel FX market.

On the other hand, on the official FX window, the Naira closed at N869.13/$ yesterday. THISDAY’s findings also showed that the Naira traded at N988.46/$ and N1,035.12/$ on January 2nd and 3rd, 2024 respectively on the official window.

The federal government recently received $2.25 billion out of the $3.3 billion foreign exchange (FX) facility from Afreximbank.

The long-awaited credit support seeks to ameliorate the acute FX shortage in the country which had constrained economic activities and doused investors’ confidence.

It was learnt that Nigeria would pay an interest of 11.85 per cent per annum on the $3.3 billion “pre-export finance facility which some commentators had said was too expensive. Until now, the fine details of the transaction, which has a five-year tenure, had been withheld by all parties involved.

Earlier in December, President Bola Tinubu had assured Nigerians of the commitment by his administration to resolve the FX backlogs through injection of funds into the market.

It was estimated that there are between $7 billion to $10 billion FX backlogs to be cleared.

However, despite the FX lifeline, the Naira continues to be under pressure.

Some analysts who spoke to THISDAY on the development said given the magnitude of the FX backlog, the new FX injection could be a flash in the pan if at all committed to settling the liabilities.

The CBN declined to confirm if the Afreximbank support had actually been deployed to support the Naira.

Speaking with THISDAY, Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, pointed out that Nigeria’s outstanding FX liabilities which stood at over $7 billion, “even if the $2.25 billion is deployed by CBN, it will simply just patch up the situation in the short term but will not be the solution to the current Naira slide, in the long run.”

He said, “Our inability to generate FX via crude sales is largely to blame. When Nigeria was producing 2m bpd, this provided enough FX liquidity to shore up the Naira.

“Now, at below 900,000 bpd, we are simply not generating enough FX to halt the Naira slide.”

Shelleng said currency speculators are aware of the situation and have continued to position against the Naira.”

He said this has continued to widen the gap between the parallel and official market rates.

The Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said if the new liquidity injection was utilised to settle FX backlog rather than support the naira, there was little chances that the naira would firm up against the dollar.

He said, “We do not know whether the Afrexim Bank funds have been deployed into the market.

“We are not oblivious to the outstanding foreign currency settlements to be done and completed by the Central Bank of Nigeria(CBN).

“If the Inflows have been deployed for the foregoing purpose, the impact may not be felt in the parallel FX market and may not impact the exchange rate.”

Ekechukwu said, “What we need to do is to ensure our refineries work as scheduled and promised.

“We also need to make our solid minerals sector more productive for the federal government and not for illegal private miners.

“We should take export business as a priority, backed by presidential executive orders. Insecurity must be reduced to the barest minimum.”

Also, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, further stressed that the Naira’s continuous downward slide despite the Afrexim’s credit support was as a result of huge outstanding FX obligations of over $10 billion and increased request for FX for fuel and other import which is well over the capacity of existing reserves to accommodate.

He said, “The scarcity will continue to persist until we are able to reduce our FX obligations to the barest minimum and start receiving FX inflow from Dangote refinery and foreign investors into the economy.

“Presently, there is enormous pressure on the FX position of the government and it is definitely creating severe economic challenges in the effort of the federal government through the CBN to stabilise the FX marke