Africa’s largest economy finds itself grappling with its most severe economic challenges in decades, as the Central Bank of Nigeria (CBN) faces a critical situation.
The CBN’s debt to foreign banks, including $500 million owed to Goldman Sachs and $7 billion to JP Morgan for securities lending, coupled with an additional $6.3 billion in foreign currency forwards, poses a potential threat.
These forex obligations, which the CBN must fulfill for foreign investors, have led to calculations indicating that addressing these demands in the face of foreign exchange shortages could consume a substantial 40.7 percent of Nigeria’s total foreign reserves, currently valued at $34.1 billion.
The figures have raised concerns among experts, who question the credibility of Nigeria’s official foreign reserves position.
Kelvin Emmanuel, CEO of Dairy Hills Ltd, highlighted that senior treasury officials and portfolio managers express doubts about the accuracy of the CBN’s reported numbers, attributing these doubts to the bank’s inability to clear FX backlogs.
Goke Adetoyinbo, an analyst at CSL Stockbrokers Limited, asserted that the CBN’s monetary policy has placed Africa’s largest economy in a precarious situation.
He emphasized that the root of the problem lies in the bank’s attempts to achieve objectives beyond its capacity.
To address this, Adetoyinbo suggested that effective fiscal policy and aggressive taxation are the way forward, providing a means to bolster the country’s reserves.
Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited, echoed the concerns, emphasizing the need for a proactive approach to enhance Nigeria’s economic prospects.
He stressed the importance of not only aggressive taxation but also effective taxation, alongside an emphasis on improving non-oil exports to attract foreign exchange.
It’s important to note that Africa’s largest economy’s external reserves are divided into distinct portions: the CBN, the Federal Government of Nigeria (FGN), and the Federation.
The CBN handles foreign exchange inflows from various sources, with the proceeds credited to the Federation account.
These monetized foreign exchange reserves belong to the CBN, enabling it to execute monetary policy and safeguard the Naira’s value.
