Reprieve came to the financial markets yesterday with the Central Bank of Nigeria (CBN) clearing matured forward foreign exchange (forex) backlogs with a number of banks. Analysts say, this will calm the nervous economy and further reinforce confidence in the financial system. Market makers said, the clearance started since Wesnesday.
One of the immediate result of this is that the naira is beginning to add weight.
It were reports last week of plans by the presidency to ‘corner’ dollar reich’ Nigerians and those with ill-gotten dollar to boost forex supply.
The amount of overdue forward payments is estimated at about $6.7 billion, according to government officials. Clearing that backlog has weighed on the naira, which fell to a record low of almost 1,000 per dollar on the official market this week.
“We have being directed to inform you that CBN has cleared all outstanding matured forwards forex,” a note from Citigroup showed.
“I can confirm the backlog in 14 banks have been cleared. Don’t quote me as I don’t have the details yet,” source said.
Another commercial bank who preferred anonymity confirmed this yesterday.
“Yes, the CBN commenced forex backlog payment to our bank. yesterday”.
It added that Stanbic IBTC also alluded to the clearing of the forex backlogs.
Blueprint had reported that in an effort to sustain the recent appreciation of the naira against the dollar, the Federal Government has initiated moves to bridge the supply gap fueling the currency’s decline, reaching out to individuals hawking dollars for a parley.
According to reports, it was learnt from top government sources that the government was reaching out to individuals hoarding the dollar, establishments and those found to have looted the treasury to make them “bring their monies to the mainstream market.” It was learnt that the government was willing to do whatever was necessary to solve the problem.
A top source in the Presidency said the initiative formed the crux of two Executive Orders recently signed by President Bola Tinubu.
The orders are part of the Federal Government’s measures to ensure liquidity in the nation’s forex market, stabilise the market and sustain the appreciation of the naira, which had fallen against the dollar in recent weeks.
Although the orders are now in operation, their content and the ramifications of the interventions are unknown as they are yet to be gazetted.
Speaking on the panel session of the 29th Nigeria Economic Summit, held in Abuja last week, Finance Minister and Coordinating Minister of the economy, Wale Edun, said, “Mr President announced that he had taken measures to ease illiquidity in the forex market, which we know is very problematic at this time.
“The market is illiquid; it’s not functioning properly because there is no supply, and there are various reasons for that. The solution that the President has put on the table is that he has signed an executive order that effectively allows, under forbearance, all the cash that is in the domestic economy to legally come into the formal money supply.
“Along with that, there is another executive order that allows domestic issuance of foreign currency instruments so that they will have the incentive to provide that foreign exchange from whatever source.”
This forbearance, is to be a sort of amnesty for persons and institutions hoarding the dollar.
The senior government official told our correspondent that details of the Executive Orders were intentionally kept from the public so as not to raise too much dust that would distract the administration from its goal of stabilising the naira.
The official said, “It’s intentional that we didn’t put out the details. We are talking to a large enough number of stakeholders to bring in their dollars to the mainstream market. These people hold billions worth of cash and we are trying to send them a clear message that they can inject money into the economy and still take it out swiftly when they want.
“We need those dollars back in the system. So, we are trying to see how we can regularise them.”
Also, former Deputy Governor, Central Bank of Nigeria, Tunde Lemo, has advised against the free floating of the naira.
He had said this while speaking during an online discourse at the Boiling Point Arena on Sunday, with the theme, ‘Persistent unstable macro-economic environment: Any way out’.
Lemo said, “Naira should not be floated today. How many currencies are on free float in the world? Apart from the currencies that are internationally convertible, dollar, Euro, and maybe Japanese Yen. Even the Chinese Yaun is managed.
“Why would anybody just say that we should free up naira when we don’t have the reserve level, when we have trade and balance of payment deficit? I think that is a fast way to suicide.”
He said, “One other thing that they need to do is the new team at the central bank needs to restore confidence in the currency market. All these, while they are issuing circulars, banning this product and so on and there is no clarity about the market dynamics, all of these means that the participants in that market will not be rational, and once confidence is lost, how do you bring it back?