Thread by @yinkanubi

4mths ago, I raised the alarm abt CBN defaulting on delivery of FX forwards. Some said it was a false alarm only for the CBN to admit in its June 16 circular to "prioritize orderly settlement of any commited forward". They started delivering alright but stopped at Jan'23 maturity

https://twitter.com/yinkanubi/status/1663893243057131524

Since then, they've not honoured their commitment to fulfill their obligations to deliver forwards with maturities from Feb 2023. Customers are still incurring million in trade charges for trade loans which have not been offset due to the non-delivery of the FX forwards by CBN.

From the CBN audited report and the JP Morgan report, we've an idea why CBN might be struggling to meet these obligations. Unfortunately, this has not been helpful because it damages the risk profile of NGN and makes access to trade finance more difficult for banks and importers.

This is my suggestion. The CBN needs to come clean on this subject. If it's unable to meet these obligations, then it should come out and say so. No point delaying the inevitable. It should approach importer's with a deal to refund to them their NGN at current mkt (official rate)

Wld the CBN take a hit? Yes! Because it'll be exchanging NGN taken at a pre devaluation rate with a post devaluation rate. But hey, it's the sovereign, it can after all print money. The importers also will take a hit because they may have to offset FX liabilities at higher rates.

But it'll save both parties the cost incurred daily, the huge exchange losses due to revaluation and it will clear billions of dollars of outstanding which is part of what is weighing the NGN down. It'll also help restore access to trade finance & ease our bad credit risk rating.

There are many (especially Corporates) who will not agree with my suggestion. Insisting instead that the CBN must meet their obligations. I understand and you will perfectly be in your right to insist that a contract executed must be enforced even if you are a sovereign. But...

.... there comes a time when reality dawn's that you need to be realistic and take a haircut. I believe now is that time. The liquidity we were expecting has not arrived in over 3 months of FX unification. The Afreximbank deal appears to still need some tweaking before availment.

We might be in this quagmire for longer than anticipated. Better to cut your losses now than have to file for bankruptcy under the weight of trade charges & huge exchange losses.

Like I said in the quoted tweet "we're uncharted territory". We may need to thread uncharted paths.

Don't get me wrong there are consequences & implications for a sovereign admitting its unable to meet forward obligation even if such admission is made in private or contextually presented to avoid the technical definition of "default". But what is the alternative?

Let's discuss