Naira appreciates as govt clears $7bn FX backlog

Optimism around the $7bn foreign exchange backlog’s clearance and improved liquidity contributed to a 3.68 per cent week-on-week appreciation of the naira to 1,474.78/$ at the close of trading in the past week from 1,531.20/$ in the previous week.

On Wednesday, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, announced that the Federal Government had cleared the backlog of $7bn in foreign exchange following a successful verification exercise by forensic auditors.

Speaking at the launch of Nigeria’s Regulatory Policy Framework organised by the Presidential Enabling Business Environment Council, Cardoso expressed an optimism that the clearance of the backlog would ease off the bottlenecks associated with the repatriation of funds by businesses, multinationals, and foreign investors.

He said, “In addressing foreign exchange liquidity constraints, decisive steps have been taken to clear the outstanding $7bn forex backlog to ensure that businesses, multinationals, corporations, and foreign investors can repatriate funds seamlessly.

“This initiative has restored confidence among market participants and reinforced Nigeria’s commitment to honouring financial obligations in a timely and efficient manner. Talking about the $7bn backlog, we have cleared the verified claims. We also looked at the unverified ones, and I believe that we are at the final stages of separating what qualifies as fully verified, and we will surely be paying out the money that has been verified by the forensic auditors. It is unfortunate, to be honest, that it has taken so long.

“But the truth of the matter is that there were a lot of practices that went on that really should never have happened in the first place. That said, we are going to ensure that we do what we need to do to strengthen our market and create a better trust in what your investors naturally desire and deserve.”

As the naira appreciated at the official trading window, it also appreciated at the parallel market, where it rose from 1660/$ in the previous week to 1,575 last Friday, indicating a 5.12 per cent increase.

In their weekly macroeconomic report, analysts at Meristem Securities averred that the completion of the exercise is expected to restore confidence in the foreign exchange market, “ensuring that businesses can now operate with greater certainty. We believe that this would help alleviate repatriation challenges for businesses, multinationals, and foreign investors, enhance market liquidity, and improve investors’ confidence.”

Business executives are already expressing confidence in the newfound stability of the naira.

Speaking at an event organised by PwC recently, the Managing Director/Chief Executive Officer of Rainoil, Gabriel Ogbechie, said, “In the last month or more, we have seen calmness in the market. I have always argued that the problem is not what the exchange rate is. But let it be stable so we can plan.”

The Chief Executive Officer, Centre for the Promotion of Private, Dr Muda Yusuf, who also spoke with The PUNCH on the strengthening of the naira, said that with this move, the CBN has reduced the pressure on itself and restored investors’ confidence.

He said, “What this means for the naira exchange rate and our foreign reserves is that the CBN has reduced the pressure on itself. The CBN now has better space to be able to build reserves and be able to support the naira. From the second half of 2023 through to 2024, one of the challenges that the CBN faced was the clearance of this backlog in addition to servicing matured obligations in terms of debt and some of the forward commitments that had been made both on the forex reserves and on our crude oil.

“So, the CBN had so many commitments and pressure on the reserves. With the clearance of the backlog, there is now more space for the CBN to stabilise the currency and be able to intervene in the currency market periodically and be able to build reserves. The value of this is that it would help our macroeconomic environment. It will also ease the pressure on prices. There is a strong correlation between exchange rate stability and price stability; I’m talking in terms of inflation now. It is a significant accomplishment by the Central Bank, and it is positive for the economy.”