Naira Strengthens as Nigeria Clears $7bn Forex Backlog, Boosting Market Confidence

The Nigerian naira appreciated by 3.68% against the U.S. dollar last week, closing at ₦1,474.78/$, following the Federal Government’s clearance of a $7 billion foreign exchange backlog. The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, announced that a successful forensic audit had verified and facilitated the payment of these outstanding obligations. This move is expected to ease liquidity constraints and improve the repatriation process for businesses and foreign investors.

Speaking at the launch of Nigeria’s Regulatory Policy Framework, Cardoso emphasized that clearing the backlog would strengthen market confidence and restore trust among investors. He acknowledged previous inefficiencies in the forex system but assured that measures were being implemented to prevent future irregularities and enhance financial stability. The naira also gained in the parallel market, rising from ₦1,660/$ to ₦1,575/$, reflecting a 5.12% increase.

Financial analysts at Meristem Securities believe the backlog clearance will enhance liquidity and reduce operational uncertainty for businesses. They anticipate that this will improve investors’ confidence, alleviate foreign exchange bottlenecks, and provide a more stable economic environment for multinational corporations and foreign investors operating in Nigeria.

Business leaders have expressed optimism about the naira’s recent stability. At a PwC event, Rainoil CEO Gabriel Ogbechie stated that market stability is more crucial than the actual exchange rate, as it allows businesses to plan effectively. Similarly, Dr. Muda Yusuf of the Centre for the Promotion of Private Enterprise highlighted that the move reduces pressure on the CBN, allowing it to build reserves and manage currency fluctuations more effectively.

Clearing the backlog marks a significant step toward economic stability, reducing inflationary pressures and reinforcing Nigeria’s commitment to honoring financial obligations. Analysts predict that with increased forex liquidity, the CBN will have better control over currency fluctuations, ultimately supporting Nigeria’s broader macroeconomic goals.

Source: Punch