President Bola Tinubu has pledged to uphold all of Nigeria’s foreign exchange obligations made through forward contracts. These forward contracts are financial agreements in which two parties commit to swapping a specified amount of one currency for another at a predetermined future date and exchange rate.
The Central Bank of Nigeria (CBN) had initiated these agreements with Nigerian businesses, assuring them of a fixed amount of dollars at a prearranged price in the future. These contracts enabled these businesses to establish Letters of Credit (LCs), which are bank-issued payment guarantees for importers.
With the expectation of receiving the promised dollars from the CBN upon the arrival of goods, businesses utilized these LCs to import products from foreign suppliers, ensuring a seamless flow of imports and facilitating international trade for Nigerian companies.
However, since February 2023, the CBN has been unable to fulfill its promises, leading to a substantial backlog of around $3 billion owed to these businesses. As a result, they have been unable to meet their obligations to foreign suppliers, causing disruptions in the supply chain and potentially damaging their relationships with international partners.
This issue isn’t confined to domestic businesses alone; foreign investors also have a considerable backlog of approximately $10 billion owed to them by the CBN. This situation has implications for the confidence and trust of foreign investors in the Nigerian economy, potentially deterring future investments and harming economic growth.
Furthermore, the scarcity of foreign exchange liquidity due to the CBN’s inability to meet its commitments has resulted in the suspension of various transactions, including payments for school fees and Personal Travel Allowance (PTA) applications, causing inconvenience and financial difficulties for individuals reliant on these services.
In summary, the CBN’s failure to honor its commitments has significant financial implications for businesses, leading to payment backlogs and disruptions in international trade relationships. This situation has also negatively impacted the overall economic stability, with suspended transactions and a potential decline in foreign investor confidence. Addressing this issue and restoring trust in the CBN’s ability to fulfill its commitments will be essential for the recovery and growth of the Nigerian economy.
In response to the substantial Forex backlog issue, President Bola Tinubu, at the 29th edition of the Nigeria Economic Summit Group (NESG), has announced that his government is committed to upholding the sanctity of every legitimate contract, in line with their commitment to fairness and the rule of law in the country.
He said: “Specifically, as it relates to foreign exchange obligations of the government, all forward contracts that the government has entered will be honoured and a framework has been put in place to ensure that these obligations are met in due course.”
Tinubu also disclosed that a framework has been established to ensure that the government meets its foreign exchange obligations as stipulated in the contracts.
An official of the Central Bank of Nigeria (CBN) who was at the event said, “This framework will likely include policies, procedures, and financial resources to ensure the obligations are met as agreed upon.”
The president in his address to the NESG, said there must be consumer credit, adding that the scheme would have to come to effect as soon as possible.
He said: “I task my team and my colleagues to build this programme and develop it now. We cannot talk about anti-corruption when you have to look for cash to buy a car when there’s no mortgage for homeownership.
“Where do you expect a civil servant to have N3 million or N5 million for housing without corruption? If you don’t change and plan the welfare of your judiciary and you ask them to be fair, render justice with mercy, with a hungry stomach.
Tinubu noted that Nigeria aims to achieve a $1 trillion economy by 2026 and $3 trillion within this decade through sustainable and competitive growth.
He said the private sector is crucial to achieving this goal, and that the government is seeking collaboration and support from industry leaders to realize this vision.
He said public-private partnerships and successful models from the past will be utilized to ensure a prosperous Nigeria for all.
Tinubu said: “The private sector is encouraged to bring their ideas, leadership, and capital to build a hopeful future. I am confident that by working closely with all of you in the private sector, financing our $3 trillion National Infrastructure Stock can be achieved in 10 years and not in 300 years.
“Building megacities in every geopolitical zone of the size and scale of Lagos must not take us another six decades. We can do it in one decade. A fully networked and connected Nigeria by rail, gas, fibre optics and road network can be constructed in less than 20 years. Establishing thriving Industrial zones in every part of Nigeria is possible before 2030.”
Speaking about the need to stimulate the economy, President Bola Ahmed Tinubu disclosed that “by January 2024, the new student loan programme and consumer credit schemes will have come into effect. New and affordable homes will also be built at a record pace. We have all felt the pain of these reforms; soon, we shall begin to reap the rewards. It is my hope that this Summit will deliberate and proffer yet more solutions to complement the programmes mentioned above.
