Nigeria moves to address outstanding FX liabilities

The Central Bank of Nigeria is on a mission to tackle the country's outstanding foreign exchange (FX) liabilities, which currently stand at approximately $2.2 billion. Governor Olayemi Cardoso recently highlighted that out of the $7 billion outstanding FX obligations, around $2.4 billion are considered invalid for settlement. This revelation comes at a crucial time for Nigeria's economy, as market stability and investor confidence are paramount. The efforts to address these FX challenges have garnered attention, with S&P Global Ratings affirming Nigeria's sovereign credit ratings at 'B-/B' for both the long- and short-term foreign and local currency. Despite the affirmation, concerns linger regarding the significant FX backlog and its implications for the market and economy. To shed light on these developments and their potential impact, Paul Alaje, a Senior Economist at SPM Professionals, joined CNBC Africa for an in-depth discussion. Alaje emphasized the critical importance of boosting investor confidence to navigate the FX market's uncertainties and volatility. He noted that Governor Cardoso's proactive approach in acknowledging the current FX situation and taking decisive actions sends a positive signal to both local and foreign investors. By addressing the validity of outstanding FX liabilities and implementing necessary measures, the Central Bank aims to instill confidence and stability in the Nigerian Naira. Alaje underscored the significance of transparency and trust in the market, highlighting the need for consistent data tracking and robust investment strategies. The conversation also delved into the role of stakeholders such as the Nigerian National Petroleum Corporation (NNPC) in shaping market dynamics. Alaje stressed that NNPC's cooperation and adherence to regulatory frameworks are essential for bolstering investor trust and market resilience. Furthermore, the discussion touched upon the S&P's rating outlook on Nigeria, revealing potential upside and downside risks. Alaje expressed concerns about managing inflation and FX crisis, emphasizing the need for efficient economic management to mitigate adverse impacts. He cautioned that inflation could surpass 30 percent, impacting consumer purchasing power and overall economic stability. Additionally, Alaje highlighted the challenges posed by fluctuating exchange rates and their repercussions on import-dependent sectors. He noted that structural reforms and strategic investments are crucial for addressing these challenges and promoting sustainable growth. As the conversation wrapped up, Alaje addressed the possibility of converting dollar account holdings into Naira as a last resort amid FX uncertainties. While acknowledging the Central Bank's stance on preserving market integrity, he emphasized the importance of maintaining a balanced approach to currency regulations. Alaje advocated for a transparent and inclusive policy framework that fosters economic stability and investor confidence. In conclusion, Nigeria's efforts to address FX liabilities reflect a broader commitment to enhancing market resilience, fostering investor trust, and driving sustainable economic growth. As stakeholders navigate the evolving FX landscape, collaboration, innovation, and sound economic management will be key to overcoming challenges and realizing long-term prosperity.