Nigeria Sells Dollars To Ease Backlog Trapping Foreign Funds

The Nigerian central bank has started to sell dollars to clear a backlog of demand for the greenback that has kept foreign investors trapped in Africa’s largest economy.

The bank sold foreign currency spot and 150-day forwards on Monday and Wednesday to corporates and investors that have waited for five months to get their money out of the country, people with knowledge of the matter said. Central bank spokesman Isaac Okorafor confirmed that the monetary authority has intervened in the market to draw down the backlog, declining to say how much it has sold in the foreign-exchange market.

The West African nation was hit by a severe shortage of dollars after the central bank halted its weekly interbank foreign-currency sales in March. The outbreak of the coronavirus and consequent lockdown of major economies led to the slump in the price of crude, which accounts for more than 90% of the nation’s foreign-exchange earnings.

Dollar sales, even in low volumes, could help ease pressure on the official exchange rate of naira, which has lost over 24% of its value since March as the central bank was forced the devalue it twice.

“The resumption of sales should allow investors to exit the economy and could also attract more funds,” said Oluwasegun Akinwale, a research officer at Nova Merchant Bank Ltd. in Lagos. “It should result in gradual convergence of rates toward the fundamental value.”

From banning the use of agents in import transactions to calling out exporters that don’t repatriate proceeds, the central bank is trying to avoid another devaluation of the naira.

However, currency stability will depend on the pace of dollar sales from authorities because the real size of the backlog is unknown, said Opeyemi Ani, a senior analyst at Cordros Securities Ltd.

Lagos-based FSDH Group estimates the backlog could be as high as $7 billion, or about a fifth of Nigeria’s net foreign reserves.

The government of President Muhammadu Buhari has promised to unify the country’s multiple exchange rates amid pressure from the International Monetary Fund and the World Bank.

– Bloomberg