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In a move seen as a potential compromise, the Central Bank of Nigeria (CBN) has relaxed its February 2024 directive restricting the repatriation of foreign exchange (FX) proceeds by international oil companies (IOCs).
Previously, the CBN mandated that IOCs could only repatriate 50% of their export earnings immediately, with the remaining 50% held for 90 days. This policy aimed to boost domestic FX liquidity. However, a new CBN circular dated May 6th, 2024, clarifies that IOCs can utilize the held 50% for settling certain financial obligations within Nigeria.
“The initial 50 percent of the repatriated export proceeds can be pooled immediately or as at when required,” the circular states, signed by CBN’s Director of Trade and Exchange Department, Hassan Mahmud. “[The funds] can be used to settle financial obligations such as petroleum profit tax, royalty and domestic contractor invoices.”
This relaxation offers IOCs more flexibility in managing their finances. Analysts believe it could ease tensions that arose after the initial restriction was announced. However, it remains to be seen how effective the new policy will be in balancing the CBN’s goals of maintaining domestic FX liquidity with the needs of foreign oil firms operating in Nigeria.
Key Questions Remain
While the revised policy offers some concessions, key questions linger. The impact on FX availability in the domestic market is yet to be fully understood. Additionally, it’s unclear how the CBN will determine which types of domestic spending qualify under the new guidelines.
Looking Ahead
The CBN’s move suggests a willingness to find common ground with IOCs. The coming months will be crucial in determining the effectiveness of this revised policy and its impact on Nigeria’s oil sector and broader economic landscape.
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