The Central Bank of Nigeria’s audacious plan to eliminate its $10 billion foreign exchange backlog within a mere two weeks has stirred both curiosity and skepticism among financial experts and traders in the country.
Speaking during NewsTimes’ OnTheMoney series on Saturday, September 9, 2023- Zeal, a financial analyst, expressed reservations about CBN’s timeline, saying,
- “Two weeks is a very short timeframe, so I would assume for my own sanity that for them to give such a short deadline, they must have a definite plan they are going to execute. If CBN wants to clear the backlog they should without announcing it. Because, if in two weeks they do not clear it, they are going to have created even bigger problems. But I will take their word for it”
Zeal’s concerns reflect the doubts regarding the feasibility of the CBN’s plan. The $10 billion backlog has been a long-standing issue, and the sudden promise of resolution in such a short period has left many wondering what has changed.
Olumide, another financial expert, shared similar sentiments, stating that the CBN’s announcement appeared more like a mirage than a reality. He raised questions about the source of liquidity for such a massive undertaking.
- “Ever since I read JP Morgan’s report about the exposure and leverage the Nigerian Central Bank has, and more recently, a Fitch rating highlighted that the CBN engaged in swaps with commercial banks totalling up to $10 to $12 billion, it’s become evident that all is not well within our financial system.
- “When you delve into the figures, considering the number of foreign exchange deposits and our earnings, even with oil prices touching $90 per barrel, it’s clear that the supply of foreign exchange has not been as robust as one would hope. Nigeria doesn’t claim the lion’s share of the oil sales; we only participate to a certain extent. This situation raises a crucial question: Where is the liquidity really coming from?” Olumide probed.
CBN’s plan to clear the backlog is seen as a crucial step in stabilizing the Nigerian currency, the naira, which has been under pressure due to FX shortages. However, experts warn that any falter or weakness in the CBN’s execution of this plan could have serious consequences for the exchange rate and the country’s economic stability.
- “At the end of the day, Central banks don’t do PR when it comes to actions in that way. There are issues when you don’t have that power, you see the world has seen your balance sheets and seen that you don’t make that much. So, saying, you will clear it in two weeks. Are you clearing PTA? Or the total FX backlog? “
- “Already the CBN dismissed the JP Morgan report and claimed we have sufficient FX to cover our obligations. However, the concern here is that if this plan doesn’t materialize – given that we are left with just 8 days since the announcement was made – trust me, we would see the Naira breaking the N950/$ mark. Investors are heavily investing in the dollar, which is likely to escalate speculative demand.
- “In my view, the central bank must be absolutely vigilant because any misstep or weakness in their approach could push the Naira to a significantly unappealing exchange rate.” Olumide continued.
Considering other issues brewing in the country such as the rise in metering price, India’s multi-billion-dollar pledges, and the equity market, here are the key highlights of the conversations on the “Follow the Money” clubhouse.
Follow this link to listen to the conversation.