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Naira Appreciates as CBN Settles All Valid Forex Backlogs

Nigeria’s central bank has fulfilled a key pledge to process an inherited backlog of $7 billion in outstanding liabilities.

The Central Bank of Nigeria (CBN), on Wednesday, announced that all valid Foreign Exchange (FX) backlogs owed various sectors of the economy had been settled.

The FX settlement fulfilled a key pledge of the CBN governor, Mr. Olayemi Cardoso, to process an inherited backlog of $7 billion in outstanding liabilities.

That was as the naira, on Wednesday, continued to appreciate both at the official and parallel markets, posting significant one-day gains.

The local currency appreciated to N1, 490/$1 at the parallel market, compared to N1, 590 recorded on Tuesday, indicating a N100 gain in one day.

Similarly, at the official Nigerian Autonomous Foreign Exchange Market (NAFEM) the naira closed on Wednesday at N1, 492.61 to the dollar, representing a N67.96 gain compared to N1, 560.57 on Tuesday.

CBN acting Director, Corporate Communications, Mrs. Hakama Sidi Ali, disclosed that the bank had defrayed all FX indebtedness, in a statement.

Ali said the apex bank recently concluded the payment of $1.5 billion to settle obligations to bank customers, effectively offsetting the residual balance of the FX backlog. She disclosed that independent auditors from Deloitte Consulting meticulously assessed these transactions to ensure that only legitimate claims were honoured.

Ali added that any invalid transactions were promptly referred to the relevant authorities for further scrutiny.

Cardoso had recently reassured investors, “We made clearing the FX backlog a priority to restore credibility and confidence in the Nigerian economy.

“It was important that we go through an independent and credible process that would determine the authenticity of those obligations, and, at this point, I can tell you that we have now cleared all genuine, verifiable transactions.

“This encumbrance to market confidence in the country’s ability to meet its obligations is now totally behind us.”

The central bank also reinforced its determination to push through ongoing plans to recapitalise Nigerian banks, and said the last exercise was conducted in 2005.

In a presentation on Wednesday at the CITI- CEEMA Macro Conference in London, CBN Deputy Governor, Economic Policy Directorate, Mr. Muhammad Sani Abdullahi, explained that the move was part of measures to ensure banking system stability.

Abdullahi said the planned consolidation sought to support the proposed targeted $I trillion-economy to align with current dynamics, support monetary policy transmission, enforce risk-based supervision to ensure that Nigerian banks remained safe and sound, as well as ensure dynamic macroeconomic and banking industry stress testing to assess system vulnerabilities and risk in the banking system.

Abdullahi also said exchange rate volatility had moderated, and the spread narrowed to N222.24/$, from N662.59/$ post interventions. 

He added that FX rates depreciated by 10.32 per cent on March 8, 2024, where it closed at N/$1,625.23 compared with N/$1,473.26 on February 13, 2024.

FX rates appreciated marginally by 0.33 per cent on March 8, 2024 where it closed at N1, 625.23/$, compared to N1, 630.66/$ on Feb 27, 2024.

Clearance of FX transactions backlog remained part of the overall strategy detailed in February’s Monetary Policy Committee (MPC) meeting to stabilise the exchange rate and curb imported inflation, as well as spur confidence in the banking system and the economy.

Cardoso used the meeting and a subsequent conference call with foreign portfolio investors to set expectations for sustained increases in Nigeria’s foreign currency reserves and improved liquidity in the foreign exchange market.

The CBN followed, this month, by reporting a significant increase in external reserves, rising by $993 million to $34.11 billion as of March 7, 2024, the highest level in eight months.

The month-on-month increase was driven by a marked advance in remittance payments by Nigerians overseas, as well as higher purchases of local assets, including government debt securities, by foreign investors.

Speaking in a recent exclusive interview with Arise Television, the broadcast arm of THISDAY, Cardoso revealed that about $2.4 billion out of the claimed $7 billion outstanding foreign exchange liabilities of the federal government were not valid for settlement.

He said the bank had settled verified FX requests, which amounted to $2.3 billion at the time, and added that current total outstanding FX obligations remained $2.2 billion.

Cardoso indicated that part of the headline $7 billion outstanding FX claims were not valid, citing the outcome of a forensic audit by Deloitte Management Consultant, which was commissioned by the apex bank.

The central bank governor further expressed confidence that the outstanding FX liabilities would shortly be addressed. He maintained that CBN would not pay for FX requests that were not validly constituted. He said the bank had written to authoriseddealers to explain the disparities identified.

Meanwhile, daily turnover recorded yesterday stood at $268.29 million, indicating a 37.52 per cent increase from $195.13 million, quoted on Tuesday.

Likewise, the highest spot rate was pegged at N1620, while the lowest spot rate recorded was N1, 350.

Abdullahi said the apex bank would continue to build confidence and strategic partnership with the investor community to achieve its monetary policy objectives. He said Nigeria remained an attractive destination for emerging market investors, adding that current reforms are targeted at fostering an enabling business environment.

The CBN deputy governor told investors that the central bank was confident that the new CBN monetary policy initiatives would positively impact the Nigerian economy. He said going forward, the central bank would be committed to addressing existing monetary policy trade-offs, price stability versus output growth, and balancing monetary policy credibility with flexibility.

Abdullahi also reiterated the apex bank’s determination to deepen financial markets and improve liquidity in the FX market. He said the bank would also commit to fostering more visibility in the remittance environment and monitoring transactions in digital assets.

Abdullahi restated the apex bank’s commitment to ensuring price stability conducive for output growth. 

He promised continuous refinement of instruments of monetary policy to ensure that the bank met its objectives, adding, “We are committed to improving our communication channels in order to effectively anchor the expectation of economic agents.”

Ultimately, the CBN deputy governor said the current leadership of the central bank would ensure that the financial system remained safe, sound and resilient, adding that its efforts would be complemented with continuous engagement with relevant stakeholders.

He said the bank was working towards achieving and maintaining positive real interest rate as well as sequencing the transition to IT framework.

James Emejo and Nume Ekeghe

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