Two actions taken by the Central Bank of Nigeria (CBN) this week highlight the bank’s persistent penchant for micromanaging the exchange rate rather than heeding calls from international lenders to float the currency. The measures introduced on 24 and 25 August are likely aimed at counterbalancing an anticipated spike in FX demand as international flights are scheduled to resume on 29 August.
The CBN had suspended the sale of foreign exchange to bureau de change (BDC) operators in March when international flights were suspended but indicated that it would resume sales upon resumption of flight operations. Amid the double whammy of the Covid-19 pandemic and subdued international oil prices, foreign exchange scarcity remains a key problem for Nigeria’s economy. As of August, demand for at least USD 2.5bn is reportedly queued at the CBN for clearance and most banks have placed a USD 100 monthly spending limit on credit cards for international transactions. As per the chart below, the delta between the official and the parallel market rate could soon be nearing the level of the 2016/17 forex crisis.
While this gap is supposed to shrink if and when the CBN resumes sales to BDCs, the central bank is looking for other ways to save its precious forex reserves, whilst avoiding another devaluation. A directive introduced on 24 August now forces importers to specify the respective foreign supplier when channeling requests for foreign exchange to the CBN through their bank. Ostensibly, the measure is supposed to curb over-invoicing and transfer mispricing by cutting out middlemen, but will likely further complicate and bureaucratize imports. Additionally, on 25 August, the CBN directed all banks to report exporting companies that did not immediately convert their export proceeds into naira, threatening further action against any defaulters.