Moody’s Says Forex Shortages May Force Nigerian Central Bank to Delay Repaying Local Banks

Analysts at Moody’s Investors Service have concluded that a persistent foreign exchange deficit could force Nigeria’s central bank to delay repayments of $10.4 billion owed to local banks. The failure of the central bank to repay its debts on time is likely to force affected financial institutions to similarly delay the payment of their own foreign-currency-denominated debts.

Decline in oil revenues in Nigeria

Rating agency Moody’s Investors Service said Nigeria’s persistent shortage of foreign exchange could result in the country’s central bank being unable to repay debts to local creditors on time. According to Bloomberg, the Central Bank of Nigeria (CBN) owes the West African country’s so-called rated commercial creditors about $10.4 billion, which the bank received in the form of swaps and forwards.

According to Moody’s analysts, including Mick Kabeya and Lynn Merhi, the expected delay in the payment of debt by the central bank may similarly force the affected banks to delay the repayment of their own offshore obligations.

“A significant delay in repayments could leave banks running short of their own foreign exchange and could limit their ability to repay their own foreign exchange obligations,” analysts said.

Even though Nigeria is one of the largest oil producers in Africa, Nigeria’s oil revenues are gradually declining from a peak of US$62 billion in 2008 to US$36.6 billion by December 2022. increased pressure on Nigeria’s foreign exchange reserves.

Continued local currency deficit

The prospect of CBN delaying the payment of its debts comes at a time when Nigeria is also struggling with a local currency shortage. The deficit is due to the so-called Naira CBN redesign policy, an initiative that aims in part to deprive the country’s foreign exchange market of naira banknotes.

However, reports and scenes of Nigerians storming and vandalizing banks eventually forced President Muhammadu Buhari to extend the life of the newly demonetized naira banknotes. In his televised address Speaking to Nigerians on Feb. 16, Buhari said he had extended the life of the old 200 naira banknotes by another 60 days.

In his address, President Buhari stated that the naira redesign policy was a necessary step to be taken to strengthen monetary policy. The Nigerian leader also cited money laundering and terrorist financing concerns as one of the reasons he approved the demonetization of the CBN currency.

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