FX Backlog: External Reserves Dip by $523m in 3-Day
Nigeria’s gross external reserves declined by more than $523 million in three days after the Central Bank of Nigeria (CBN) indicated a plan to offset foreign currency backlog requests. From $33.954 billion, the gross external reserve was drawn down in three tranches over 3-day to $33.43 billion.
Recently, the CBN told a meeting about its plans to boost foreign exchange liquidity as well as settle the backlog of requests by local businesses over the next two weeks.
The acting CBN governor, Mr. Folashodun Shonubi hinted about the plan while speaking on the role players in the foreign exchange market should play to ensure there is liquidity in the system, especially, the Bureau de Change (BDC) segment of the market.
After the CBN brought back BDCs operators to provide holistic FX management following pressures on the local currency exchange rates, Isa Mumin told MarketForces Africa that the apex bank has no plan to sell forex to operators.
But Shonubi told the meeting that the apex bank is working with commercial banks in the country to clear the unsettled foreign exchange backlog owed to local businesses that are currently hurting companies, in the next two weeks.
Also, the apex bank chief added that the CBN will sell FX to BDCs, a move that Broadstreet analysts see as a welcome development that would reduce excessive speculative activities in the segment. The decision is also expected to reduce spurious demand by FX users for invisible transactions.
Ahead of the latest revelation by the apex bank, market analysts had told MarketForces Africa that the CBN would not achieve much from a large devaluation of the local currency in June without selling forex to BDCs to reduce demand related pressures.
According to Shonubi, the CBN alongside commercial banks in the country has been working towards clearing the backlog that is variously put between $2 billion and $2.5 billion.
“We have been working with commercial banks on various structures to clear it. As a matter of fact, there’s a large amount of the obligations that the banks in Nigeria have already taken off.
“So, what happened was at that maturity, they actually made the foreign exchange available for those who needed to use it, the importers and what have you.”
Dwindling external reserves reduced the CBN buffer to support the naira. At the investors’ and exporters’ window, the naira has continued to fall despite analysts’ consensus that the local currency is undervalued after mid-year devaluation.
The balance in the foreign reserves has been subject to debate after the release of audited statements. Fitch Ratings recently indicated that there is a transparency issue in the CBN audited report. Fitch Flags Nigeria’s FX Reserves for Transparency Issue
“Particular uncertainty surrounds near USD32 billion of ‘FX forwards, OTC futures, and currency swaps’, which are recorded as an off-balance-sheet “commitment” but are not broken down”, Fitch said in a report.
The report added that this could include some non-deliverable contracts settled in Nigerian naira, which would not be a drain on reserves, as well as commitments of a longer tenor. #FX Backlog: External Reserves Dip by $523m in 3-Day