In just eighteen days, Nigeria’s foreign exchange reserves fell by about $1.02 billion, as the country’s central bank intensified its attempts to support the naira. Based on the most recent data from the CBN, the FX reserves were $33.50 billion on April 3, 2024, compared to $34.45 billion on March 18, 2024.
The reserve had been continuously increasing prior to the present decrease; between February 5, 2024, and March 18, 2024, it saw an incredible 43-day spike during which it appreciated by $1.28 billion.
The CBN ascribed this growth to rising interest in local assets, including as government debt instruments, among international investors, as well as higher remittance payments from Nigerians living outside. Furthermore, changes made to the foreign exchange market and a rise in oil production helped to the reserve growth.
However, the trend since March 18 indicated a significant drawdown in the reserve. After peaking at $34.45bn, it gradually declined; $34.39bn on March 19, $33.57bn by April 2, and finally $33.50bn by April 3. This rapid decline of $1.02bn within 18 days underscores the pressure on the reserve as efforts continue to stabilise the local currency.
The CBN has been actively intervening in the foreign exchange market to support the naira, which has faced pressure from various economic factors. These interventions often involve the sale of dollars to maintain liquidity in the market, a strategy that has likely contributed to the decrease in FX reserves.
During the 18 days under review, the Central Bank of Nigeria made two significant announcements. First, it declared the complete clearance of the valid foreign exchange backlog. Second, it facilitated the sale of foreign exchange to Bureau De Change operators in Nigeria at an exchange rate of N1,251/$1.
Usually, Nigeria’s foreign exchange reserve reflects the country’s balance of payments and its ability to meet international obligations. A substantial decline in reserve can erode investor confidence and potentially lead to a credit rating downgrade, which would further impact the nation’s borrowing costs.
The International Monetary Fund recently projected that Nigeria’s foreign reserve would experience a significant reduction, plummeting to $24bn by 2024. The IMF foresaw a challenging period for Nigeria’s financial account through 2024–25, driven by the absence of new Eurobond issuances, substantial repayments of existing funds and Eurobonds totalling $3.5bn, and continued portfolio outflows.
Meanwhile, the federal government has said it will issue domestic bonds denominated in foreign currency in the second quarter of this year, precisely in the month of June, a move which some economists believe would stabilise the naira and nation’s reserve.
