The Central Bank of Nigeria (CBN) says that the Letter of Credit payments in the first seven months of 2024 dropped by 57.04 per cent to $391.91 million compared to $912.35 million in the same period of 2023.
The weekly International Payments Data provided by the Central Bank of Nigeria on its website showed that in the period under review, Nigeria’s Letter of Credit (LC) payment shed about $520.44m, which some analysts have blamed on factors like the exit of multinationals, skyrocketing customs duties and the unstable foreign exchange, which hampered Nigeria’s foreign trade in the period under review.
The analysis of the CBN data showed that the highest LC payments this year were recorded in February at $102.59 million, followed by July at $79.65 million and $58.33 million in January.
In March, LCs payments stood at $43.53m compared to $269m in the same month in 2023, rose to $54.02m in April 2024 and dropped to $21.48m in May before rising to $32.26m in June.
Speaking on the trend, the Managing Director of Arthur Steven Asset Management Limited, Tunde Amolegbe, said that the decline was expected given the unstable exchange rate, skyrocketing customs clearing charges and of course the exit of major international companies and the closure of other manufacturing in the country.
He, however, added that the situation may improve even if it is slightly on the back of the tax waivers given recently for the importation of some essential food products.
“Stability in the FX market and a lower interest rate and harmonised tax regime should also help,” the Punch newspaper report on Monday quoted Amolegbe as saying.
The report said that the Director of Research and Strategy at Chapel Hill Denham, Tajudeen Ibrahim, said: “Nigerian businesses are paying down on their Letters of Credit. This is an indication of an improvement in the dollar liquidity in the Nigerian financial system, largely on the back of CBN’s policy response to the dollar shortage in the system.
“The CBN at the last RDAS auction did sell some volume of dollars to companies to help them pay down on their foreign currency loans. One of the major companies that has been paying down on their letters of credit is MTN. I reckon they have paid about $300m in LCs, so corporations have been clearing their LCs because of the negative impact it is having on their earnings and balance sheet.”
GIK/APA