To Stem Naira’s Continuing Decline, CBN Clears Another $500m FX Backlog

•Tinubu transfers crude oil revenue receipts from NNPCL to CBN
•Move aimed at ensuring transparency, accountability

James Emejo in Abuja and Nume Ekeghe in Lagos

The Central Bank of Nigeria (CBN), yesterday announced that it had released an additional $500 million to address verified outstanding FX liabilities to various sectors of the economy. The announcement was obviously targeted at arresting the continuing decline of the Naira at both the official and parallel markets.

But it did not mitigated the naira’s woes as it sustained its depreciation against the United States dollar on the parallel market segment of the foreign exchange (FX) market as it raced towards N1,500 to a dollar, to close at N1,460/$1.

That was as President Bola Tinubu approved, with immediate effect, the movement of revenue from crude oil receipts from Nigerian National Petroleum Company (NNPC) Limited to CBN.

The naira’s slide on the parallel market saw the country’s currency lose N40 in one day, depreciating from the N1, 420 to a dollar it was all through the weekend to N1, 460 to a dollar yesterday.

However, on the official Investors and Exporters’ (I&E) window, the naira closed at N1, 348.62 to a dollar yesterday, which was the same figure it closed on Friday.
The data on the FMDQ website showed that yesterday’s daily turnover was $64.29 million, compared to $100.97 million recorded on Friday, indicating a 36.38 per cent decline.

The highest spot rate recorded was N1, 414.94/$1, while the lowest spot rate recorded was N701/$1.

The CBN’s intervention came barely a week after it paid about $2 billion to settle outstanding commitments across manufacturing, aviation, and petroleum sectors.

CBN’s acting Director, Corporate Communications Department, Mrs. Hakama Sidi Ali, in a statement, said the apex bank remained committed to settling all legitimate foreign exchange backlogs within a short time frame.

Over the years, NNPCL had maintained sole control over crude oil sales, only rendering accounts to the federal government.

However, under the new arrangement, NNPC would submit receipts for crude oil sales to the central bank for vetting and documentation.

Reiterating the assurances of the CBN governor, Mr. Olayemi Cardoso, Ali said the bank had begun implementing a comprehensive strategy to improve liquidity in the Nigerian foreign exchange markets in the short, medium, and long terms.

She said, “As the governor said, the CBN’s focus is on addressing fundamental issues that have hindered the effective operation of the Nigerian FX markets over the years.”

Ali added that ongoing market reforms were designed to streamline and unify multiple exchange rates, foster transparency, and reduce arbitrage opportunities. She expressed confidence that a stable exchange rate would boost investors’ confidence and attract foreign investment.

The central bank urged all participants in the market to play by the rules, stressing that transparency in the market would enable the fair determination of exchange rates and, by extension, guarantee stability for businesses and individuals alike.

The bank had over the past few months released various sums in its effort to clear the backlog of foreign exchange liabilities.

Earlier this month, the apex banking industry regulatory body announced that it disbursed about $61.64 million to foreign airlines through various Deposit Money Banks (DMBs).

The bank stated that it further redeemed outstanding forward liabilities amounting to about $2 billion in the past three months.

CBN stated that the payments reaffirmed its commitment to eliminating the backlog of pending matured foreign exchange in banks as well as dousing pressure on the exchange rate.

Ali further explained that the initiative was part of the apex bank’s efforts to decrease its outstanding liability to the airlines.

She said, “This underscores the CBN’s commitment to the resolution of pending obligations and a functional foreign exchange market.”

According to her, these payments consolidate CBN’s ongoing efforts to settle all remaining valid forward transactions, with the aim of alleviating the current pressure on the country’s exchange rate.

By the latest intervention, the central bank hoped to provide a considerable boost to the naira against other major world currencies as well as increase investors’ confidence in the economy.

The federal government recently received $2.25 billion out of the $3.3 billion foreign exchange (FX) facility from the African Export–Import Bank (Afreximbank).
The long-awaited credit support sought to ameliorate the acute FX shortage in the country, which had constrained economic activities and doused investors’ confidence.

Earlier in December, Tinubu had assured Nigerians of his administration’s commitment to resolving the FX backlogs through injection of funds into the market.
It was estimated that there was between $7 billion and $10 billion in existing FX backlogs, which must be cleared to boost investors’ confidence, some of whom had already exited the country due to the persistent liquidity constraints bedevilling the economy.

It was further gathered that Tinubu was resolute in his commitment to implementing strategic reforms and restructuring key sectors of the Nigerian economy. The move to centralise control over crude oil revenue in CBN was seen as a bold step towards curbing potential financial mismanagement and ensuring greater transparency in the country’s economic dealings.

“So, crude oil sales no longer start and end with NNPC. CBN must have every record of sales and vet them to ensure all money comes to the government’s accounts,” a source explained.