The World Bank has expressed reservations about the Foreign Exchange measures rolled out by the Central Bank of Nigeria. The multilateral bank recently urged the CBN to intensify its efforts towards easing the pressure on the country’s FX market.
This was disclosed by the World Bank’s country director, Shubham Chaudhuri, via email to an inquiry by Bloomberg.
Chaudhuri said, “stronger action and a clear commitment from the CBN would go a long way towards facilitating a stronger recovery, despite its recent resumption of dollar sales to the BDCs after a 5-month suspension.”
Nigeria has been hit by a severe shortage of the greenback for several months, following the outbreak of the coronavirus pandemic and the crash of crude oil prices, which accounts for over 90% of the country’s foreign exchange earnings. The pandemic led to a lockdown of major economies globally including Nigeria, and very low foreign exchange inflow.
CBN suspended its weekly inter-bank foreign currency sales in March, in the face of depleting external reserves which were limiting the apex bank’s capacity to intervene in the Forex market.
The scarcity of dollars, which has been a major challenge, led to a backlog of about $2 billion forex demand by importers and foreign investors, who are looking to repatriate their funds. In a bid to stem this tide, defend the naira, and reduce the pressure on the country’s depleting external reserve, the CBN rolled out some measures to boost liquidity in the foreign exchange market.
However, stakeholders have complained that some of these measures from the apex bank are hurting their operations, and the capacity to repay their dollar-denominated debt.
Chaudhuri pointed out that a good example of that is the Azura Power Project in Edo state, which is partly financed by the International Finance Corporation (IFC) – the private lending arm of the World Bank. It is one of the many established local and foreign private firms that are having serious difficulty in assessing forex to meet their business and contractual obligations.
It was reported earlier in the week that this might cause the Azura Power Plant to default in its dollar-denominated debt.
In a bid to boost dollar liquidity, the CBN had banned third parties or agents from buying forex routed through Forms M, and threatened to sanction exporters who do not repatriate proceeds of their transactions. In addition, President Muhammadu Buhari, recently instructed the apex bank to stop providing foreign exchange to importers of fertilizers and food items.