According to figures from the Central Bank of Nigeria, Nigeria’s foreign exchange reserves have declined by $1.8 billion in the last ten weeks.
The nation’s foreign exchange reserves were $32.69 billion as of May 29, 2024, compared to $34.44 billion on March 18.
This decrease is a reduction from the $36.1 billion that was reported in May 2023. Over the previous few months, the reserves have been gradually decreasing; since February 2024, the reserves have decreased by a total of $3.4 billion.
Experts surmise that a number of causes, such as debt repayment, a sharp drop in oil exports, a loss in foreign investment, and an increase in imports, are responsible for the decline in foreign exchange reserves.
The total amount of debt repaid as of January 2024, according to the Apex Bank, was $560 million. By February and March of the same year, it had dropped to $283.29 million.
According to experts, the foreign debt servicing must have been funded by the external reserves of the top bank.
Even though the number of dollars in the official foreign currency market surged to $4.60 billion in May, the naira ended the month lower.
According to data from the FMDQ Securities Exchange Limited, the FX market concluded for the month on Friday with the naira losing 5.60 percent. The dollar was quoted at N1,485.99, which was weaker than N1,402.67 quoted at the beginning of the month.
The dollar sold for N1,470 at the close of the foreign exchange market in May 2024, which was less than the N1,380 quoted at the start of the month.
The way the currency has performed this week indicates that it has been extremely difficult to hold onto its value in the face of shifting investor mood and forex turnover.
According to reports, Olayemi Cardoso, the governor of the CBN, provided the precise explanations for the sharp drop in reserves. “What we have observed with regard to the shift in our reserves is the shift that you would find in any country, for instance, when debts are due and specific payments are required.
These are made because they are also necessary to maintain your credibility. Other times, money comes in and you know it takes the reserves up again, and you watch in the next few days, there will be an improvement,” he commented.
Over 90% of Nigeria’s foreign exchange profits come from oil exports, which significantly impact the country’s economy. Experts in finance observed that the depletion of foreign exchange reserves had caused the naira, the currency of Nigeria, to fall against the US dollar.
Since the start of 2024, the naira has lost more than 100% of its value relative to the dollar, ranking it among the worst-performing currencies in Africa.
In an effort to stabilise the naira and increase investor confidence, the CBN has begun interfering in the foreign exchange market.
Why this matters
Concerns have been expressed regarding the nation’s capacity to pay its foreign debt commitments and finance its imports, nevertheless, due to the reduction in foreign exchange reserves.
The fall in Nigeria’s foreign exchange reserves has alarmed economists, as these reserves are a crucial gauge of the nation’s economic health. There has been pressure on the government to lessen its reliance on oil exports and diversify the economy.
What they’re saying
“The decline in foreign exchange reserves is unmistakable proof that Nigeria’s economic problems are far from being solved.”
“ In order to stop the country’s foreign exchange reserves from further declining, he advised the government to “take urgent steps to address the decline in oil exports, boost foreign investment, and diversify the economy.”
Final word
On Monday, the naira strengthened to N1,476 per dollar as trading activity resumed at the official market.
