By Mike Abba
Nigeria’s Letter of Credit payments declined by 57.04 %, Year-to-Date, to $391.91 million as of July 2024 compared to $912.35 million in the same period of 2023.
This is according to the weekly International Payments Data provided by the Central Bank of Nigeria on its website.
A Letter of Credit is a mode of payment used for the importation of visible goods.
It is a written undertaking given by s bank (issuing bank) at the request of its customer in which the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.
In the period under review, the country’s LCs payment shed about $520.44 million, 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.
An 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 $43.53 million compared to $269 million in the same month in 2023, rose to $54.02 million in April 2024 and dropped to $21.48 million in May before rising to $32.26 million in June.
Analysts opined 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.
They, 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.
According to financial experts, stability in the FX market and a lower interest rate and harmonised tax regime should also help.
According to Bloomberg, the naira has fallen by about 70 per cent since May 2023 when President Bola Tinubu took office following the devaluation of the currency. Several attempts by the CBN to boost liquidity have yet to yield significant results.
It could be recalled that the CBN at the last RDAS auction did sold some volume of dollars to companies to help them pay down on their foreign currency loans.
The development has both positive and negative implications:
Positive in the sense that it will create scarcity of foreign goods and a new desire to resort to local production to arrest scarcity, with improvement to Nigeria’s Balance of Trade and Exchange Rate of the naira in the long run.
Negative, in that it will continue to cause a drag on the economy and high inflationary pressure in the immediate to near term.
