In a surprising turn of events, the Central Bank of Nigeria (CBN) has put an end to its Ways and Means advances to the Federal Government until previous loans are settled. The decision, aimed at curtailing inflationary pressure, has sent ripples through the nation’s financial landscape.
Ways and Means advances, essentially loans given to the government to supplement spending until revenue is generated, have been a contentious issue. The previous CBN governor, Godwin Emefiele, allegedly printed a staggering N22.7tn for former President Muhammadu Buhari under this scheme without the National Assembly’s approval.
The current CBN governor, Olayemi Cardoso, has identified the increase in money supply, driven by the rise in net foreign assets and these advances, as a significant factor fueling the current inflationary pressure. In an unprecedented move, the CBN has also ceased quasi-fiscal measures of over N10tn under the guise of development finance interventions, which contributed to flooding excess naira and escalating prices.
Impact on the Forex Market
The CBN’s directive to banks to sell excess dollars in the official foreign exchange (FX) market has led to a dramatic drop in dollar sales by banks. The dollar sales plummeted by 56.58% to 253.77 million on Friday from a peak of 584.53 million on Monday. This resulted in the naira losing 3.41% of its value against the dollar for the five trading days in the week at the official market.
The FX market closed with the dollar at N1,469.97 on Friday, a significant shift from N1,419.86 quoted on Monday. The parallel market, also known as the black market, saw the local currency slide by 3.16% (N47) week-on-week to N1,485 per dollar on Friday compared to N1,438.1 closed on Monday.
New Guidelines for International Money Transfers
In another significant development, the CBN has issued a directive barring international money transfer operators (IMTOs) from paying Nigerians in foreign currencies. This means that Nigerians abroad can no longer send dollars or foreign currencies into bank accounts in the country. IMTOs have removed the option of sending dollars to bank accounts and are now exchanging at the rate of N1,450 to the dollar.
The CBN has instructed banks to pay Dollars and other foreign currency payouts from abroad in Naira to boost forex supply. Proceeds of IMTO more than the equivalent of $200 shall be paid through an account, and the exchange rate for the Naira payment shall be at the prevailing rate in the Nigerian Foreign Exchange Market.
Nigerian banks have initiated the full implementation of these revised guidelines. As a result, Nigerians receiving dollars from family and friends abroad will now be paid in naira, either in cash or through a bank account, at the prevailing rate in the Nigerian Foreign Exchange Market.