Nigeria’s foreign exchange reserves have taken a significant hit, dropping by approximately $1.02bn within 18 days as the Central Bank of Nigeria steps up efforts aimed at defending the naira.
On March 18, 2024, the FX reserves stood at $34.45bn, but by April 3, it had dropped to $33.50bn, based on the latest data from the CBN.
Before the current decline, the reserve had been steadily growing, witnessing a remarkable 43-day surge between February 5 and March 18, 2024, during which it appreciated by $1.28bn.
The CBN attributed this rise to increased remittance payments from Nigerians abroad and heightened interest from foreign investors in local assets, including government debt securities.
Additionally, reforms in the foreign exchange market and an increase in oil production contributed 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.