Moody’s Says Currency Shortage May Force Nigerian Central Bank To Delay Payment From Local Banks Bitcoin News

Persistent currency shortages may force Nigeria’s central bank to delay payment of $10.4 billion owed to local banks, Moody’s Investors Service analysts have concluded. Failure of the central bank to pay its debts on time will likely force affected financial institutions to similarly delay paying their own foreign-currency-denominated debts.

Nigeria’s declining oil revenue

Nigeria’s perennial currency shortage is likely to cause the country’s central bank to fail to pay domestic lenders on time, ratings agency Moody’s Investors Service said. As reported by Bloomberg, the Central Bank of Nigeria (CBN) owes the West African nation’s so-called qualified commercial lenders about $10.4 billion which the bank received in the form of swaps and forwards.

According to Moody’s analysts, including Mik Kabeya and Lynn Merhi, the early delay in central bank debt repayment could similarly force affected banks to delay the settlement of their own offshore obligations.

“A material delay in payment could well lead banks to face their own shortage of foreign currency and could limit their ability to pay their own foreign currency liabilities,” the analysts said.

Despite being one of the largest oil producers in Africa, Nigeria’s oil revenues have gradually declined from a high of $62 billion seen in 2008 to $36.6 billion seen in December 2022. This sharp drop in The revenue, which is attributed to oil theft and vandalism, has in turn put further pressure on Nigeria’s foreign exchange reserves.

Persistent shortage of local currency

The prospect of CBN delaying its debt payments comes at a time when Nigeria is also grappling with a shortage of local currency. The shortage stems from CBN’s so-called naira redesign policy, an initiative that, in part, seeks to deprive the national currency of naira notes.

However, reports and scenes of Nigerians looting and vandalizing banks eventually forced the country’s President Muhammadu Buhari to extend the lifespan of the recently demonetized naira notes. In its televised address to Nigerians on February 16, Buhari said he had extended the life of the old 200 naira notes by an additional 60 days.

In the speech, President Buhari insisted that the naira redesign policy is a necessary step to be taken to strengthen monetary policy. The Nigerian leader also cited money laundering and terrorist financing concerns as some of the reasons he approved CBN’s currency demonetization exercise.

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Terence Zimwara

Terence Zimwara is an award-winning journalist, author and writer in Zimbabwe. He has written extensively about the economic problems of some African countries and how digital currencies can provide an escape route for Africans.