Estimated reading time: 2 minutes
Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, expressed optimism on Wednesday that the country’s banking sector holds the key to resolving the lingering foreign exchange (FX) backlog.
In an interview with Bloomberg, Edun asserted that the estimated $5 billion backlog could be significantly reduced through collaboration between the government and commercial banks.
“There is enough liquidity in the banking sector to deal with the current backlog,” Edun stated. He acknowledged the Central Bank of Nigeria’s (CBN) ongoing efforts to address the issue but suggested that commercial banks could play a more active role.
Edun envisions two potential strategies: direct spot interventions by banks and the use of forward contracts. Through spot interventions, banks would sell foreign currency directly to the CBN, thereby increasing the available FX pool.
Forward contracts, on the other hand, would involve agreements between banks and the CBN to deliver foreign currency at a future date, providing the government with greater predictability and flexibility in managing the backlog.
The minister expressed confidence in the government’s ability to repay the backlog once cleared. “We believe we can pay down the backlog almost at once,” he remarked. However, he did not elaborate on specific timelines or financing mechanisms.
Edun’s remarks suggest a possible shift in Nigeria’s approach to tackling the FX backlog. While the CBN has traditionally held the primary responsibility for managing the forex markets, this statement hints at a potential broadening of the responsibility to include commercial banks.
The feasibility and potential impact of this strategy remain to be seen. Analysts point out that incentivizing banks to participate in FX interventions could require attractive interest rates or other concessions from the government. Additionally, concerns regarding transparency and regulatory oversight will need to be addressed.
Edun’s comments come amid ongoing concerns about the accessibility of foreign currency in Nigeria. Businesses and individuals often face difficulties securing forex for essential imports and international transactions. Addressing the backlog and streamlining access to FX would be a significant step towards easing these constraints and supporting economic growth.
