Nigeria’s foreign exchange reserves have decreased by $1.8 billion over the past 10 weeks, according to the latest data from the Central Bank of Nigeria (CBN).
As of May 29, 2024, the country’s FX reserves were $32.69 billion, down from $34.44 billion on March 18. This marks a significant drop from the $36.1 billion recorded in May 2023. Overall, the reserves have seen a total decline of $3.4 billion since February 2024.
Experts attribute this decline to several factors, including debt repayment, a notable decrease in oil exports, reduced foreign investment, and increased imports. Debt repayments recorded by the CBN were $560 million in January 2024, reducing to $283.29 million in February and $276.16 million in March 2024. Analysts suggest that the CBN has been servicing foreign debts using the external reserves.
Despite a surge in dollar supply amounting to $4.60 billion in the official foreign exchange market, the naira weakened in May. The FX market closed the month with the naira losing 5.60 percent, quoted at N1,485.99 per dollar, down from N1,402.67 at the start of the month, as reported by FMDQ Securities Exchange Limited. The currency’s struggle reflects fluctuating forex turnover and investor sentiment.
CBN Governor Olayemi Cardoso attributed the significant decline in reserves to necessary debt repayments, emphasizing that such fluctuations are normal. He expressed optimism about an impending improvement in reserves.
Nigeria’s economy relies heavily on oil exports, which account for over 90 percent of its foreign exchange earnings. Financial experts have noted that the decline in FX reserves has led to a weakening of the naira, which has lost over 100 percent of its value against the dollar since early 2024, making it one of Africa’s worst-performing currencies.
“The CBN has been intervening in the foreign exchange market to stabilize the naira and boost investor confidence,” noted one financial expert. However, the decline in FX reserves has raised concerns about Nigeria’s ability to meet its foreign debt obligations and finance imports.
The drop in FX reserves is seen as a critical indicator of Nigeria’s economic health, sparking concerns among economic experts. The government faces pressure to diversify the economy and reduce reliance on oil exports.
“The decline in FX reserves indicates that Nigeria’s economic challenges are far from over,” the expert added, urging the government to address the decline in oil exports, boost foreign investment, and diversify the economy to prevent further depletion of FX reserves.
Despite these challenges, the naira began trading positively at the official market on Monday, appreciating to N1,476 per dollar, a 0.61 percent increase from Friday’s N1,485.99. According to FMDQ’s daily market summary, the intraday high closed at N1,500 per dollar, down from N1,550, while the intraday low weakened to N1,250 per dollar from N1,174.88 quoted at NAFEM on Friday. The dollar supply by willing buyers and sellers amounted to $121.87 million.
