The Central Bank of Nigeria (CBN) is currently facing scrutiny for its persistent delays in delivering forward contracts. The delays have been a source of concern among businesses and investors who rely on these contracts for financial stability and risk management.
Experts have also raised concerns that the persistent delays by the CBN in honouring its forward contracts could worsen the current currency crisis and with an attendant negative impact on the economy.
Currently, there are several months’ backlog of delayed forward contracts, which are undermining investors’ confidence thereby hurting the economy in massive measures.
Forward contracts are essentially financial instruments used by businesses to hedge against currency fluctuations and manage financial risks. The apex bank plays a pivotal role in facilitating these contracts. However, recent reports suggest that the CBN has consistently failed to deliver on these contracts within the agreed timeframes as it is still struggling to meet forward contracts that matured in February 2023.
A chief executive officer of a leading conglomerate was quoted as saying, “The delays in receiving our forward contracts from CBN have disrupted our financial planning and made it extremely challenging to manage our currency risk effectively.”
Also, a professor of economics at the University of Uyo, Akpan Ekpo Akpan, said the situation could snowball into a major currency crisis. He further stated that given the reliance on the importation of equipment for infrastructure development and operations by local companies, there could be a cascading effect on retail consumers.
“Once you cannot have infrastructure, whether hard or soft, then your economy will be in trouble,” he said.
He added that this is the main reason experts have continued to call for economic diversification that will usher in a productive rather than a consumption economy that can attract more foreign exchange for the nation.
On the way out of the dire situation, Akpan said, is “export and earning foreign currency is the only way out”.
“We are not doing that now. Rather, we depend on operating a consumption economy when what we need now, is a productive economy,” he said,
On his part, Prof. Uche Uwaleke of Nasarawa State University warned that the implications are grave if not checked on time. He explained that forward contracts are binding agreements as failure to settle outstanding debts when due on the part of the Central Bank of Nigeria is akin to sovereign debt default.
“The consequence is loss of confidence in the CBN and the government while the cost of government borrowing will increase, worsen fiscal balance, foreign investments and capital importation will drop. There will be increased pressure on the forex market among others,” he explained.
Also, the companies seeking to import the equipment for local production of goods for export would be hindered hence the reduction in potential source of FX inflow into the country.
The delays have left many businesses exposed to volatile exchange rate movements, resulting in financial losses and uncertainties. This has, in turn, hampered investment and economic growth in Nigeria.
To address the issue, it is essential to understand the root causes of these delays. The central bank has cited a variety of reasons, including administrative issues, foreign exchange constraints and market volatility.
While these factors may contribute to delays, they raise questions about CBN’s preparedness and efficiency in managing the tough challenges.
Reacting to the situation, the Chief Executive Officer, the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said this failure on the part of the apex bank will further erode confidence in Nigeria’s currency and economy.
The public is growing increasingly sceptical of the central bank’s handling of these financial instruments. The delays in delivering forward contracts by the CBN are not limited to individual businesses but have wider implications for the Nigerian economy.
According to expert opinions, some of the key impacts include reduced investment Confidence. According to them, delays in forward contracts erode confidence in Nigeria’s financial markets. Often, investors are hesitant to commit to long-term projects, hindering economic growth and job creation.
It could also heighten currency instability. The delays expose businesses to currency fluctuations, making it challenging to predict their financial positions accurately. The uncertainty, according to stakeholders, could deter foreign investment and affect the stability of the local currency.
Nigeria also risks reduced economic growth as low confidence in the financial system and currency instability often lead to lower economic growth activities, affecting the livelihoods of Nigerians and the overall health of the economy.
There are concerns that the delays in delivering forward contracts by CBN are causing significant disruptions in the business community with far-reaching consequences for the Nigerian economy.
Hence, economists have called for urgent measures and reforms to address the issues, restore trust and ensure that forward contracts fulfill their crucial roles in mitigating financial risks for businesses operating in Nigeria as failure to do so could have long-lasting negative effects on the country’s economic prospects.
Where the Bola Ahmed administration has made foreign investment roadshows a key strategy for growing the economy, stakeholders said there is a need to build confidence in the economy before junketing around the globe to woo foreign investors.
