Nigeria’s external reserves have been reduced by 11.55 percent ($4.28 billion) year to date, as the naira continues to plummet against the dollar in 2023.
BusinessDay reported that the external reserves, the apex bank’s pool of foreign assets, fell to $33,78 billion as of December 20, 2023, from $37.06 billion on January 3, 2023, according to data from the Central Bank of Nigeria.
The continuous reduction in foreign currency reserves was caused, among other things, by poor earnings from crude oil sales and increased demand for foreign exchange.
Nigeria’s economy is primarily reliant on oil exports, although revenue from oil has been dropping owing to a variety of issues. Oil prices can change due to geopolitical events and market conditions, affecting Nigeria’s revenue.
As a result of the pent-up demand caused by the dollar supply deficit, Nigeria’s naira has progressively dropped versus other currencies.
During the year, the naira/dollar exchange rate fell by 125.55 percent (N578.70) at the Nigeria Autonomous Foreign Exchange Market, formerly known as the Investors’ and Exporters’ forex window.
According to CBN data, the dollar was quoted at N1,039.63 on December 22, 2023, up from N460.93 in the first quarter of the year.
The naira fell by 62.16 percent in the parallel market, often known as the black market, as the dollar was sold for N1,200 on December 25, 2023, compared to N740 at the start of the year.
“We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies,” CBN Governor Yemi Cardoso stated at the Chartered Institute of Bankers of Nigeria bankers dinner.
Nigeria’s gross official reserves declined by $392 million month on month to $33.0 billion in November 2023, according to the CBN’s most recent data on external reserves.
The reduction suggests that gross external reserves have been reduced by approximately $4.1 billion over the 11 months to November 2023, implying an average monthly depletion rate of $371m, according to a report by FBNQuest.
Aside from the CBN’s involvement in the foreign exchange market, a secondary cause responsible for the significant fall is coupon payments on Nigeria’s Eurobonds, which totaled approximately $149 million for the month.
According to the study, overall reserves at the end of November 2023 covered 7.7 months of merchandise imports based on the 12-month balance of payments to June 2023, and 5.7 months when services were added.
The foreign reserve position of South Africa and Egypt, the other two markets we watch on the continent, improved m/m, as indicated in the figure below,” experts at FBNQuest said.
South Africa’s international liquidity position, which includes gross reserves, gold reserves, and forward positions, grew by $809 million each month after accounting for a less liquid element of the reserves.
Higher gold prices, foreign currency value adjustments, and asset price variations all contributed to the m/m increase.
Egypt’s overseas reserves increased by $70 million to $35.2 billion. Notably, these reserves have showed a gradual recovery, rebounding from a severe drop in 2022 ascribed to balance-of-payments issues.
The new CBN administration has began to address the underlying difficulties with FX policy, beginning with clearing some of the FX backlog.
“Looking forward, we expect that recent international engagements by the government will result in much-needed foreign exchange liquidity into the country,” the analysts said.
