OPS asks CBN to settle $2.4bn FX forwards

Members of the Organised Private Sector (OPS) have called on the Central Bank of Nigeria (CBN) to promptly settle valid outstanding Foreign Exchange (FX) forwards to save several companies from imminent collapse. Our correspondent reports that the CBN Governor, Olayemi Cardoso had disclosed that about $2.4 billion out of the acclaimed $7 billion outstanding foreign […]

Members of the Organised Private Sector (OPS) have called on the Central Bank of Nigeria (CBN) to promptly settle valid outstanding Foreign Exchange (FX) forwards to save several companies from imminent collapse.

Our correspondent reports that the CBN Governor, Olayemi Cardoso had disclosed that about $2.4 billion out of the acclaimed $7 billion outstanding foreign exchange liabilities of the federal government were not valid for settlement.

He pointed out that while the bank had settled verified FX requests which amounted to $2.3 billion at the time, the total outstanding FX obligations remained at $2.2 billion.

Cardoso further indicated that part of the headline $7 billion outstanding FX claims were not valid, citing the outcome of a forensic audit by Deloitte Management Consultant which the apex bank commissioned.

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He said the bank had called in the Economic and Financial Crimes Commission (EFCC) to investigate suspicious transactions to prosecute individuals and entities with fraudulent entries.

However, analysts and stakeholders have argued that the involvement of EFCC was needless, and urged the CBN to quickly verify and pay outstanding liabilities in the interest of the economy.

Reports indicated that affected companies may lose about N2.4 trillion as a result of the non-settlement of the pending forwards which will impact on the Company Income Tax (CIT) for the next two to three years and reduce the federal government’s income.

Analysts also said the scenario could also exact a huge toll on the country’s fragile FX market which is being rebuilt by the apex bank as it would come under severe pressure, and potentially drive exchange rates to about N3,000.

Speaking on the development, Professor of Economics and former member of the CBN’s Monetary Policy Committee (MPC), Prof. Akpan Ekpo, urged the CBN to settle the forwards to reduce the pressure from suppliers and banks on businesses.

Ekpo, who is also a former Director General, West African Institute Financial and Economic Management, stressed that forwards only made sense in an economy that is productive and certain of inflow of foreign exchange, whereas the Nigerian economy is more of a consuming and import dependent one.

He said, “An economy like Nigeria, which depends heavily on crude oil exports for foreign reserves must tread carefully with forwards or not engage in the practice.

“The unsettled forwards by the CBN would have adverse effects on corporates and SMEs, especially the latter. It would affect their ability to procure essential materials required for production.”

The Director General, Nigerian Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, explained that forward transaction is an agreement whereby a company credits the CBN through its bank for future supply of FX usually within 90 days.

He expressed dismay that data provided by JP Morgan & Co., had estimated unsettled liabilities at $6.8 billion in 2022, which certainly would be higher afterwards.

Oyerinde said the development had already truncated the smooth running of production plans and capacity utilisation in industries, particularly that of SMEs that do not have the financial clout to explore other liquidity sources.

He further lamented that supply of raw-materials and production cycle had been broken due to the unsettled indebtedness by the central bank, which had ultimately led to low level of business activities, loss of revenues and low profit margins for corporate firms, including the SMEs.

He therefore urged the CBN to prioritise the settlement of outstanding forwards so that the companies involved could move forward and get on with their businesses.

On his part, Economist/Chief Executive, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, also aligned with the position of the OPS that the CBN should clear the outstanding forward transactions.

Yusuf stressed that the current operating environment for most businesses remained extremely challenging, particularly with the real sector and small businesses.

He said, “There are macroeconomic headwinds, there are structural impediments, there are multidimensional supply chain challenges.

“Profitability and sustainability of many businesses are at risk. In truth, the plight of workers amid the cost-of-living challenges is a cause for concern.

“But the difficult operating environment for businesses is equally very troubling. These two considerations matter in this conversation and require some delicate balancing.  It is only a business that is thriving that can retain or create new jobs.”

Also, the Chairman, Nigerian Economic Summit Group (NESG), Niyi Yusuf, said it was in discussion with the central bank over the issues.