THE ROLE PLAYED BY THE CENTRAL BANK OF NIGERIA IN MANAGING FOREIGN DEBT
The Nigerian Central Bank (CBN) began full-scale operations on July 1, 1959, and has performed various national and international functions since its founding,
one of which is the management of foreign debt. As a result, this project investigates the role of the cbn in foreign debt management.
A slew of issues overwhelmed Nigeria's central bank as it attempted to carry out this job, ranging from insufficient reserves to skyrocketing import expenses.
The study, which is not the result of empirical research, evaluates the various strategies implemented by the Nig central bank at various stages to ensure efficient management of external debt.
The methodology adopted centres primarily around the use of secondary data of lesser value.
However, the spectacular increase in the magnitude of foreign depreciation in the naira's value through the exchange market.
Finally, the central bank of Nigeria's debt-rescheduling programmer will be useless unless the export base is improved to ensure higher foreign exchange earnings.
The central bank's role for managing the nation's external debt began with the bank's formation in July 1959, when it took off Nigerians' portion of the nation's pound assets in the bank in 1962.
Its responsibilities were expanded by its two prudent banks, the Bank of England and the Federal Reserve Bank of New York.
The bank mostly invested its external reserves in pound and dollar securities with maturities of no more than ten years.
The major factors in its investment selection were liquidity, security, and yield.
The primary issue
The key issue in managing reserves during this period was maintaining adequate reserves to meet Nigeria's external obligations. For example, in 1960, Nigeria's external assets were sufficient to meet her import bill for 9.5 months at an average rate of N3.6m per month. However, with an increase in her external assets to N197 million in 1963, she could only fund 4.3 months of imports.
Import restrictions were introduced in the third quarter of that year, and by 1967, the average monthly bill had been reduced to N37 million.
However, reserves fell at the same period, and at N120m, they could only finance about three months of imports.
Again in 1977, as a result of assets at the beginning of 1977 declining to a level that could only purchase some four months imports at the conclusion of that year.
Nigeria's external reserves increased from N37.3 million in December 1972 to N3.38 million in December 1975 as a result of oil reserves.
This necessitated a new strategy for managing external reserves.
There was also an increase in uncertainty as a result of rising prices and depreciation of reserve currencies. These posed new challenges for the central bank, which must now manage the enlarged foreign reserve to meet the needs of the economy.
1. maintain relative stability in reserve purchasing power.
2. Reduce the impact of currency fluctuations.
3. Look for innovative ways to boost your earnings. Prior to this period of excessive reserves, the difficulties in investing the reserves were never a major worry because the bank had no surplus to invest.
1. Okigbo PNC Nigeria financial system, structure, and expansion (Longman Limited, Burnt Hill, Harlow, Essex, United Kingdom, 1981.
The available reserves were invested in assets denominated in pounds and dollars. pound showed signs of weakness, and as a result of the devaluation in November 1967, Nigeria lost a significant amount of money in pound terms.
However, Nigeria completed a sterling guarantee deal with the United Kingdom in September 1969. With this arrangement, Nigeria pledged to hold a certain percentage of her overall reserves in sterling. This arrangement was renewed based on the proportion of stating holdings, which was lowered to 48%.
The guarantee was eventually changed from US dollars to currency baskets of nations like the United Kingdom and our other business partners. With the weakening of the pound sterling, as evidenced by its declining value since June 1972, Britain changed the agreement in 1974.
Sterling, which had accounted for some 59% of Nigeria's total external reserves until 1973, became completely unstable, and its depreciation against other major currencies rose to 48 percent between 1971 and 1976.
As a result, the central bank reduced its sterling holdings from 37.9 percent of total external reserves in 1971 to 28.2 percent in 1976, and the central bank
2. Economic and Financial Review of the Central Bank of Nigeria, 1985-1988 Business Times of the Daily Times of Niger, 1985-1988.
STATEMENT OF THE problem
External debt management is a critical instrument of all economic management at the macro level, since a sustainable balance of payment position over time improves management overall economics.
Debt management has also become an essential adjustment of the balance of payments. An successful debt management plan can assist not only in returning the balance of payments to equilibrium, but also in attaining the overall macroeconomic objectives of the economy.
In general, a debt problem indicates liquidity issues in a country's balance of payments. Debt service is significant in the balance of payment because debt service payments are fixed contractual obligations.
This implies that the country must set aside a certain amount of its earned foreign exchange resources to meet that service payment.
It is generally the responsibility of a central bank to maintain an adequate volume of external resources in order to safeguard this acting as a manager and custodian of nations currency for approved foreign payments.
In most developing countries, such as Nigeria, foreign exchange earnings are frequently insufficient to cover current or future demand for international payments.
Furthermore, a country must save or hold foreign exchange resources at such a level that her trading partners do not have reservations about her ability to satisfy her international financial obligations.
Under the Nigeria exchange control, currency control measures were used to protect the country's balance of payments and to ensure domestic economic stability. Only against an exchange control approval can the central bank effect foreign currency sales.
Before foreign exchange may be distributed and disbursed to organisations and people, approval must be sought. The bank allocates foreign currency to authorised transactions on a regular basis.