The Naira is projected to strengthen in the upcoming months after the Central Bank of Nigeria (CBN) settled over $1.3 billion in foreign exchange (forex) forwards contracts last week, according to analysts.
Experts at Rand Merchant Bank in Lagos noted that following this settlement, the outstanding unpaid forex forwards contracts from now until December amount to approximately $198 million.
This reduction in unsettled contracts is expected to ease the forex pressure on the naira, contributing to its anticipated rebound.
Despite these positive developments, the naira depreciated by 0.06 percent yesterday, closing at N1,476.95 to the dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM), the official market. In the parallel market, it closed at N1,490 to the dollar, indicating a narrowing gap between the official and parallel market rates.
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The CBN has implemented various measures to enhance dollar liquidity and support the naira’s recovery in both official and parallel markets. In a significant move, the CBN recently allowed International Oil Companies (IOCs) operating in Nigeria to sell 50 percent of their forex proceeds in the domestic forex market.
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A circular issued by Hassan Mahmud, Director of the Trade & Exchange Department at the CBN, stated that the previous directive requiring IOCs to repatriate 50 percent of their forex proceeds immediately and the remaining 50 percent after 90 days remains unchanged. However, the balance 50 percent can now be used to meet local financial obligations within the 90-day period.
Additionally, the CBN mandated that all authorized dealer banks disburse Personal and Business Travel Allowances (PTA/BTA) through electronic channels only, including debit or credit cards, to ensure transparency and stability in the forex market and prevent malpractice.
“In line with the Bank’s commitment to ensuring transparency and stability in the foreign exchange market and avoiding foreign exchange malpractices, all authorized dealer banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit or credit cards. For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted,” the CBN stated.
Importers are facing increasing challenges in securing necessary funds from both the official and black markets. The high demand for dollars, driven by legitimate needs such as Form A applications for Business Travel Allowance (BTA), Personal Travel Allowance (PTA), school fees, and medical expenses, along with Small and Medium Enterprises (SMEs) relying on Form Q, exacerbates the situation.
“The problem is that dollars are scarce in the market. People are not bringing dollars and demand is so high that is why the price is going up,” a street trader revealed.
As the CBN continues its efforts to stabilize the forex market, stakeholders are hopeful that these measures will eventually lead to a more robust and stable naira.