Moody’s: The shortage of foreign exchange may force the Central Bank of Nigeria to delay repaying local banks

On February 18, analysts from Moody’s Investors Service concluded that the continued shortage of foreign exchange may force the Bank of Nigeria to delay the repayment of US $10.4 billion owed to local banks. The failure of the central bank to repay its debts on time may force the affected financial institutions to postpone the repayment of their foreign-exchange denominated debts as well.

Interpretation of this information:

The message suggests that Nigeria is facing a shortage of foreign exchange that may lead to a delay in the repayment of the Bank of Nigeria’s debt of US $10.4 billion to local banks. Moody’s Investors Service, an international credit rating agency, has analyzed the situation and predicts that the delay may also affect the repayment of foreign-exchange denominated debts by affected financial institutions.

One possible reason for the shortage of foreign exchange in Nigeria is the decline in oil prices, which is the major source of foreign exchange for the country. As a result, the government had to ration foreign exchange, leading to a scarcity of dollars needed for businesses to import raw materials and machinery. Besides, the COVID-19 pandemic has negatively impacted the economy, leading to a decrease in revenue and foreign investments. These factors have worsened the balance of payments and foreign exchange reserve position of Nigeria.

The delay in the repayment of the Bank of Nigeria’s debt has a ripple effect on the country’s financial system. If the central bank fails to pay on time, local banks may face liquidity problems, leading to a delay in the repayment of foreign-exchange denominated debts. This delay can create a chain reaction among affected financial institutions, eventually leading to a financial crisis.

The three essential keywords that summarize the message are:

1. Foreign exchange shortage: This refers to the scarcity of foreign currency, such as dollars, in Nigeria, leading to a rationing of foreign exchange and businesses struggling to import critical raw materials.

2. Repayment delay: The message suggests that the shortage of foreign exchange may force the Bank of Nigeria to delay the repayment of its debt to local banks. This delay is likely to affect the repayment of foreign-exchange denominated debts by affected financial institutions.

3. Ripple effect: The delay in the repayment of the Bank of Nigeria’s debt can create a chain reaction among local banks, leading to a delay in the repayment of foreign-exchange denominated debts and eventually a financial crisis.