Yesterday, the Central Bank of Nigeria (CBN) issued a circular reaffirming its dedication to enhancing foreign exchange (FX) liquidity and addressing the recent FX challenges in the market. The bank’s plan encompasses six (6) key points, one of which involves lifting the restrictions placed on the forty-three (43) items prohibited from accessing FX through the official market back in 2015. It is worth noting that in 2015, the CBN barred importers of these 43 items from obtaining FX via the official window, citing the intention to stabilize FX supply. However, given the persistent decline in FX reserves, it remains subject to contention if this policy achieved its overarching objectives, and thus prompting the CBN’s reversal.
Additionally, the bank’s agenda includes a commitment to addressing the current FX forwards backlog, estimated within a range of USD6.5bn – USD10bn. This backlog underscores the tight liquidity on the official window, which has led to huge demand/naira depreciation noted in the parallel market. As at 12th October 2023, parallel rates stood at NGN1035/USD (Official: NGN759.20/USD).
Overall, the CBN must take significant measures to boost FX supply in the short term, particularly in anticipation of increased demand following the removal of the ban on the importation of the 43 items. We believe that sourcing inflows through means such as an IMF intervention package, as well as considering partial or full asset sales, could assist with augmenting FX inflows. Furthermore, fiscal authorities should concentrate on increasing crude oil production while curbing pipeline vandalism and oil theft, as this would generate substantial FX inflows from crude oil exports.
However, we believe that diversifying the economy in the long term from its major dependence on crude oil exports will help in driving FX inflow. Ultimately, the success of the CBN’s six-point agenda for enhancing FX liquidity hinges on both its own capacity in cooperation with fiscal policies to enhance FX supply in addressing the elevated demand through the official market.
Click here for the press release
