Nigeria’s letter of credit payments has descended rapidly by 63 per cent in the first quarter of 2024 compared to the same period in 2023, according to international payments data from the Central Bank of Nigeria (CBN).
The total letter of credit payments made via the CBN’s official channels for Q1 2024 was $204.47 million, reflecting a shortfall of $344.75 million compared to Q1 2023, which stood at $549.22 million. This significant decrease highlights the challenges the country has faced in its international trade and financial transactions.
Quarterly Breakdown of Payments
- January 2023: Recorded payments of $107.78 million.
- February 2023: Payments increased to $171.95 million.
- March 2023: Saw the highest payment for the quarter, totalling $269.49 million.
In contrast, the situation in Q1 2024 showed a marked decline:
- January 2024: Recorded a significantly lower payment of $58.33 million.
- February 2024: Payments increased to $102.6 million, still far below the corresponding month in 2023.
- March 2024: Payments dropped to $43.54 million.
Economic Implications
The 63 per cent reduction in letters of credit could have several implications for Nigeria’s economy. Letters of credit are a crucial component of international trade, assuring exporters that they will receive payment. An intense decline in such payments could indicate decreased import activity, potentially resulting from foreign exchange shortages, stricter import regulations, or other economic constraints.
Understanding Letters of Credit
A letter of credit is a mode of payment for the importation of visible goods. At the request of the customer, the bank promises in writing to pay the exporter a certain sum within a specified time frame in return for goods, provided the customer supplies the bank with the proper documentation. This financial instrument is essential in facilitating international trade, offering security to both importers and exporters.
The sharp decline in Nigeria’s letter of credit payments underscores significant economic challenges. With foreign exchange shortages and stringent import regulations potentially contributing to this decrease, it is vital for economic policymakers to address these issues to bolster international trade and economic stability.
