Nigeria’s International Payments Surge by 31% in 5 Months – CBN Data
Nigeria’s international payment increased by about 31% between January and May 2024 amidst sluggish FX liquidity in the economy, data from the Central Bank revealed. The nation’s foreign payment is expected to accelerate faster in months following government decision on food imports to augment local production.
Some experts had criticise that the apex bank’s willing buyer and willing seller FX policy would have a negative run on the local currency due to import dependent nature of the economy.
To effectively channel foreign currency resources to appropriate sectors, the Central Bank of Nigeria has started selling US dollar to FX user as it resuscitate retail Dutch Auction system it had abandoned.
With the monetary authority’s efforts to boost FX inflows by offering government instruments at higher clearing rates to local and foreign investors, the naira has not benefitted as expected.
The local currency plummeted to N1600 due to FX liquidity shortage in the currency market, though gross external reserves continue to maintain uptrend in the second half of 2024, reaching 18-month high, recent data from the apex bank showed.
International payments by the apex bank increased by 30.8% year on year to US$3.31 billion in 5m-2024 from USD2.53 billion in the comparable period in 2023, Cordros Capital Limited said in a commentary note at the weekend.
The breakdown showed that foreign debt service and payments increased by 96.3% year on year to USD2.19 billion, while the amount accounted for 66.1% of total international payments.
The investment firm highlighted that there was an increase in direct remittances underpinned by increased payments for international services by Nigerian residents. Within the period, direct remittances increased by 28.5% year on year to USD841.37 million, analysts stated.
Meanwhile, payments for letters of credit fell by 63.3% to USD279.99 million versus USD762.03 million in the equivalent period in 2023. The contraction was partly attributable to reduced consumer demand underpinned by high inflationary pressures as well as the depreciation of the naira.
Analysts said they expect international payments to remain elevated, supported by the Federal Government’s (FG) repayment of maturing debts primarily from Multilateral and Bilateral sources as well as interest payments.
Trade imports has also been projected to improve in the short term due to reduced naira depreciation and the FG’s 150-day import duty removal on certain agricultural produce, potentially increasing international payments.
On Wednesday, the Central Bank of Nigeria (CBN) re-initiated the Retail Dutch Auction System (RDAS), marking the first foreign exchange retail (FX) auction under the current CBN administration.
Broadstreet analysts highlight that the strategic move by the apex bank was aimed at achieving several objectives.
The CBN is seeking to satisfy the growing FX demand, which has been partly fuelled by seasonal factors such as summer tourism and businesses seeking the greenback for trade; stabilizing the naira, and facilitating transparent price discovery.
The results of the retail Dutch auction showed that the CBN received bids from end users amounting to USD1.18 billion submitted through 32 authorized dealer banks.
However, bids valued at about USD313.69 million from six banks were disqualified due to late submissions or failure to adhere to the required bidding format.
Consequently, the CBN successfully auctioned USD876.26 million at a cut-off rate of N1,495.00 per US dollar, with settlement for the successful bids scheduled for Thursday.
Although the CBN has not specified the frequency of retail auctions, analyst said they expect the naira to stabilize in the short term due to reduced demand pressure and tight naira liquidity after a significant portion of bids were met at the auction.
“However, we note that the expected currency respite may be short-lived if the CBN does not sustain interventions in the FX market”, Cordros Capital Limited stated. #Nigeria’s International Payments Surge by 31% in 5 Months – CBN Data
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