Forex scarcity in Nigeria paints grim picture for investors, manufacturers as recession looms

FOREIGN currency scarcity in Nigeria is making banks’ to be unable to meet their payment obligations, especially banks whose fund are denominated in dollars.

In August, Guaranty Trust Bank Plc cut its monthly dollar spending limit on its customers’ naira Mastercard to $100 from $500, for international transactions.

Earlier in February, the bank had reduced its monthly spending limit of customers to $500, from $1,500, a move which was aimed at saving the greenback in response to the falling crude oil prices and COVID-19 pandemic.

The Central Bank of Nigeria, CBN, secured N216 billion in June from commercial banks with excess cash holdings as part of measures to support the naira, according to a Reuters report.

It also halted weekly interbank foreign-currency sales since March, after foreign investors withdrew their monetary investments in foreign currency from the economy.

A development, which has made commercial banks spend more time waiting to access dollars from the Central Bank of Nigeria, CBN to meet their payments obligations, which includes foreign payments and Global Depository Receipts, GDR.

GDR is a means by which foreign investors invest in shares in other countries without trading in the stock exchange of the company’s home country.

Currently, banks that raised capital outside the country, telecommunication companies and International Oil Companies, IOC’s are seeking to repatriate funds to their home countries to settle shareholders.

This has made firms resort to the black market, where the naira trades at around 20 per cent below the official rate, which has made dollar purchases more expensive.

Nigeria’s projected fiscal budget for 2020 was pegged at N10.8 trillion, which was based on crude oil prices at $70 per barrel and production of 2 million barrels per day to balance the budget.

However, with crude oil prices wavering around $40 and the Organisation of Petroleum Exporting Countries, OPEC, restrictions have put the country’s output to about 1.4 million barrels a day.

This has put the naira under intense pressure after foreign investors pulled out of the Nigerian economy, which created a huge financing gap.

The CBN had adjusted the official exchange rate in March, hinting a 15 per cent devaluation, to absorb the impact of an oil price crash.

On Wednesday, data obtained from the parallel market by The ICIR showed that the naira exchanged against the dollar at N480, against the British pound at N610 and against the Euro at N550.

The International Monetary Fund predicts Nigeria’s economy will shrink by 5.4 per cent this year, the worst in 40 years.

READ MORE: https://www.icirnigeria.org/forex-scarcity-in-nigeria-paints-grim-picture-for-investors-manufacturers-as-recession-looms/