In a bid to bolster the stability of the naira, Nigeria’s foreign exchange reserves have encountered a substantial setback, witnessing a decline of approximately $1.02bn within a mere 18-day period. According to the latest data released by the Central Bank of Nigeria (CBN), the reserves plummeted from $34.45bn on March 18 to $33.50bn by April 3.
The previous trajectory of the reserves had been marked by a noteworthy surge over a span of 43 days, commencing from February 5 and culminating on March 18, 2024, during which the reserves appreciated by $1.28bn.
This surge was attributed to heightened remittance payments from Nigerians abroad, increased interest from foreign investors in local assets, particularly government debt securities, as well as reforms in the foreign exchange market and a surge in oil production.
However, the subsequent decline since March 18 has underscored the mounting pressure on the reserves. The gradual descent from the peak of $34.45bn saw figures dwindling to $34.39bn on March 19, further dropping to $33.57bn by April 2, and finally settling at $33.50bn by April 3.
The CBN has been actively intervening in the foreign exchange market to support the naira amidst various economic challenges.
These interventions, often involving the sale of dollars to maintain liquidity, are likely contributing to the depletion of FX reserves.
During the reviewed period, the CBN made two significant announcements, declaring the complete clearance of the valid foreign exchange backlog and facilitating the sale of foreign exchange to Bureau De Change operators in Nigeria at an exchange rate of N1,251/$1.
The dwindling reserves raise concerns about Nigeria’s ability to meet international obligations and maintain investor confidence. The International Monetary Fund (IMF) has projected a substantial reduction in Nigeria’s foreign reserves, foreseeing a decline to $24bn by 2024.
This forecast is attributed to various factors, including the absence of new Eurobond issuances, significant repayments of existing funds and Eurobonds totaling $3.5bn, and continued portfolio outflows.
In response to these challenges, the federal government has announced plans to issue domestic bonds denominated in foreign currency in the second quarter of this year, particularly in June. This move is anticipated by some economists to stabilise the naira and bolster the nation’s reserves.
