CBN clears FX backlog, boosting Nigerian reserves by $993 million

The Central Bank of Nigeria (CBN) has announced the complete clearance of the valid foreign exchange backlog, a significant milestone in the country's economic landscape.

Mrs. Hakama Sidi Ali, the Bank’s Acting Director of Corporate Communications, shared this achievement, emphasizing CBN Governor Mr. Olayemi Cardoso's commitment to addressing an inherited $7 billion in claims.

In Abuja on Wednesday, Mrs. Ali disclosed the finalization of payments totaling $1.5 billion, effectively resolving the remaining portions of the FX backlog. This action not only demonstrates the bank’s commitment to stabilizing the national economy but also underscores the rigorous verification process employed.

Deloitte Consulting, independent auditors, were tasked with scrutinizing these transactions, ensuring the settlement of only legitimate claims and promptly referring any questionable transactions to relevant authorities.

A statement from the CBN read:

“She noted that the CBN recently concluded the payment of $1.5 billion to settle obligations to bank customers, effectively settling the residual balance of the FX backlog. “She also disclosed that independent auditors from Deloitte Consulting meticulously assessed these transactions, ensuring that only legitimate claims were honored. Any invalid transactions were promptly referred to the relevant authorities for further scrutiny.”

In addition to this economic progress, the CBN reported a significant increase in Nigeria’s external reserves, rising by $993 million to $34.11 billion as of March 7, 2024, marking an eight-month high.

This increase was fueled by higher remittance payments from Nigerians abroad and increased interest from foreign investors in local assets, including government debt securities.

These developments signal a promising trajectory for Nigeria’s economic stability and confidence, heralding a bright future for the nation’s financial health.

The statement further added:

“The clearance of the foreign exchange transactions backlog is part of the overall strategy detailed in last month’s Monetary Policy Committee meeting to stabilize the exchange rate and thereby curb imported inflation, spurring confidence in the banking system and the economy. Cardoso used the MPC meeting and a subsequent conference call with foreign portfolio investors to set expectations for sustained increases in Nigeria’s foreign currency reserves and improved liquidity in the foreign exchange market.

“The CBN followed this month by reporting a significant increase in external reserves, rising by $993 million to $34.11 billion as of March 7, 2024, the highest level in eight months. The month-on-month increase was driven by a marked advance in remittance payments by Nigerians overseas, as well as higher purchases of local assets, including government debt securities, by foreign investors.”

Further Insights: In February, CBN governor Yemi Cardoso disclosed that about $2.4 billion of the foreign exchange backlog is not valid for settlement. Cardoso clarified that out of the initially reported $7 billion FX liabilities of the federal government, about $2.4 billion were identified as invalid following a forensic audit by Deloitte Management Consultant. The audit revealed various infractions, including non-existent entities and unauthorized FX allocations, rendering these liabilities invalid. About three weeks ago, Cardoso stated that the remainder of the bank’s FX backlogs would be cleared in the next few days, which was accomplished, with approximately $400 million of valid FX backlog settled.

The recent efforts of the CBN to stabilize the naira seem to be yielding results, as parallel market operators quoted a buy price of N1400/$1 for holders of dollars looking to sell, marking a significant strengthening of the naira on Wednesday. Meanwhile, the exchange rate on the official market fell to N1,560/$1 on Tuesday, the strongest performance of the naira since March 4th, when it closed at N1534/$1.