Persistent foreign currency shortages may force Nigeria’s central bank to delay repaying $10.4 billion it owes local banks, analysts at Moody’s Investors Service concluded Moody’s Investors Service analysts have concluded. The central bank’s inability to pay its debts on time will likely force affected financial institutions to delay repayment of their forex-denominated debts as well.
Nigeria’s Declining Oil Revenue
Nigeria’s longstanding foreign currency shortfall may prevent the country’s central bank from repaying domestic financial institutions on time, according to rating agency Moody’s Investors Service. As Bloomberg reported, the Central Bank of Nigeria (CBN) owed about $10.4 billion to so-called rated commercial financial institutions in West Africa, which the banks received in the form of swaps and forwards.
According to Moody’s analysts Mik Kabeya and Lynn Merhi, the expected delays in central bank debt repayment may force similarly affected banks to delay settling their own offshore obligations.
“Significant delays in repayment could well leave banks short of foreign currency, which could constrain their own ability to service their foreign currency denominated debt,” analysts reportedly said.
Despite being one of Africa’s largest oil producers, Nigeria’s oil revenues have gradually declined from a peak of $62 billion seen in 2008 to $36.6 billion seen in December 2022. This sharp decline in revenues has been attributed to oil theft and vandalism, which has increased pressure on Nigeria’s foreign exchange reserves.
Continued local currency shortages
The prospect of the CBN delaying debt repayment comes at a time when Nigeria is suffering from a shortage of its own currency. The shortage is attributed to the CBN’s so-called naira redesign policy, which is partly an attempt to starve Nigeria’s foreign exchange of naira bills.
However, reports of Nigerians attacking and destroying banks eventually forced the country’s president, Muhammadu Buhari, to extend the life of the recently abolished naira bills In a televised address to the Nigerian people on February 16President Buhari stated that he had extended the life of the old 200 naira bill by another 60 days.
In his speech, President Buhari asserted that the naira redesign policy is a necessary step that must be taken to strengthen monetary policy. The Nigerian leader also cited money laundering and terrorism financing concerns as part of the reasons for allowing the CBN’s currency to be abolished.
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