CBN may not clear forex backlog — Report

In a report released on Friday, the Economist Intelligence Unit questioned the central bank's ability to pay $6 billion in unpaid foreign exchange backlogs to banks, stating that it "lacks the firepower" to carry out such an action.

Additionally, it stated that the naira's future is in doubt since the central bank lacks the expertise necessary to manage a foreign exchange float.

Remember how the naira gained a significant amount of value last week in response to news that the apex bank had started to pay off bank debts? This was confirmed by Isa AbdulMumin, Director of Corporate Communications at the apex bank, in a brief message to our correspondent. He said that "CBN has started off setting the fx forwards backlog."

However, the EIU noted in its most recent country report for Nigeria that ongoing currency losses would be inevitable given the size of the parallel market and the nation's small foreign exchange reserve. It also emphasized that the authorities have not demonstrated enough willingness to adopt an orthodox monetary policy to address the problems that are undermining the naira, such as sharply negative short-term real interest rates.

It further stated that because of the recent decision to remove import restrictions on 43 imported items, there will be limited availability to meet the increased demand in the official market.

A portion of the paper stated, "The CBN lacks the strength to sufficiently supply the market or clear a backlog of foreign exchange orders, valued at over US$6 billion, which will keep foreign investors uneasy. An unsupportive monetary policy implies that the naira will remain under pressure."

Official foreign reserves are stated to be US$33 billion, yet up to one-third of these assets are loans or derivatives that encumber the holdings. Long lead times at the NFEM are likely because access limitations will continue to support the official exchange rate in the short to medium term.

“However, we do not expect lasting commitment to a market-led naira, as the CBN lacks experience in conducting monetary policy under a float. High inflation and a continued spread with the parallel market will leave the exchange-rate regime unstable and result in periodic devaluations.