‘Suppliers may not accept letters of credit’ — PwC says FX backlog to affect Nigeria’s import

The inability of the Central Bank of Nigeria (CBN) to meet foreign exchange (FX) obligations may result in a decline in imports, PwC Nigeria says in its bi-monthly economic outlook for the country.

In the October report, titled, ‘Impact of Global Economic Trends on Nigeria’s Foreign Exchange and the Way Forward’, PwC said the unsettled $7 billion FX obligations of the CBN to banks will affect the confidence of foreign suppliers as regards letters of credit.

“Foreign suppliers may not accept letters of credit amid unsettled $7 billion FX obligations to domestic lenders,” the firm said.

“This may lead to less imports of the much-needed inputs and goods for manufacturing and retail/wholesale trade which may heighten inflationary pressures and negatively impact.”

According to the National Bureau of Statistics (NBS), in the first half of 2023, total foreign imports rose slightly by 3.05 percent, compared to exports, which saw a sharp increase of 8.16 percent.

Commenting on the impact of the backlog on consumers, PwC said “the unsettled FX backlogs may lead to scarcity of goods and inputs for manufacturing and trade leading to further increase in prices”.

Also, PwC said the lack of forward guidance on FX policy and the unsettled backlog of FX obligations may continue to impact the sentiment of investors, who may adopt a “wait-and-see approach”.

The multinational said FX inflow may also decline due to an increase in the monetary policy rates of global central banks, which may lead to capital reallocation from Nigeria’s financial market to other markets with more attractive yields on investment.

“Capital reallocation from Nigeria’s economy may continue to impact foreign investment flows in the short to medium term,” PwC said.

PwC said the FX scarcity will persist in the short term despite the policies implemented by the CBN to improve accessibility, such as the reintroduction of Bureau De Change (BDC) and the adoption of the FX price verification system.