Nigeria's external reserves have depleted by 11.55 per cent ($4.28 billion) as of December 20, as the naira fell steadily against the dollar in 2023.
Data from the Central Bank of Nigeria (CBN) showed that external reserves, the stock of foreign assets held by the apex bank, declined to $33.78 billion as of December 20, 2023, from $37.06 billion recorded on January 3, 2023.
The continued decline in foreign currency reserves followed low revenue from crude oil sales and increased demand for foreign exchange (FX), among other factors.
Nigeria's economy heavily relies on oil exports, but oil revenue has been declining due to various factors. Geopolitical events and market conditions can cause oil prices to fluctuate, impacting Nigeria's revenue.
As a result, Nigeria's naira has steadily fallen against other currencies due to pent-up demand amid the dollar supply shortage.
In the year, the naira/dollar exchange rate depreciated by 125.55 per cent (N578.70) at the Nigeria Autonomous Foreign Exchange Market (NAFEM), formerly the Investors' and Exporters' (I&E) forex window.
The dollar was quoted at N1,039.63 as of December 22, 2023, as against N460.93 quoted in the year's first quarter, data from the CBN indicated.
At the parallel market, also known as the black market, the naira weakened by 62.16 per cent as the dollar was sold for N1,200 as of December 25, 2023, compared to N740 at the beginning of the year.
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"We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies," said Yemi Cardoso, governor of the CBN at the Chartered Institute of Bankers of Nigeria (CIBN)' bankers dinner.
According to the CBN's most recent data on external reserves, Nigeria's gross official reserves fell by $392 million month-on-month (m/m) to $33bn in November 2023.
The decline implies that the gross external reserves have depleted by about $4.1 billion over the 11 months to November 2023, indicating an average monthly depletion rate of $371m, according to a report by FBNQuest.
In addition to demand pressure from the CBN's interventions on the foreign exchange market, a secondary factor responsible for the marked decrease is coupon payments on Nigeria's Eurobonds, totalling roughly $149m during the month.
According to the report, total reserves at the end of November 2023 covered 7.7 months of merchandise imports based on the balance of payments for the 12 months to June 2023 and 5.7 months on added services.
"However, for a more accurate picture, we must adjust the gross reserve figure for the pipeline of delayed external payments and the encumbered portion of the reserves.
"As shown by our chart below, the external reserve position of South Africa and Egypt, the other two markets we track on the continent, improved m/m," analysts at FBNQuest said.
The new CBN leadership has begun addressing the structural issues with the FX policy, starting by 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.
