External reserves decline to $33.92 billion after marginal recovery

Nigeria’s external reserves have declined by 0.10 percent day-on-day after marginal recovery in the last week.

Data from the Central Bank of Nigeria (CBN) showed that foreign reserves declined to $33.929 billion as of August 4, 2023, from $33.965 billion recorded on August 2, 2023.

Africa’s largest economy’s reserves had recovered marginally by 0.06 percent to $33.965 billion as of August 2, 2023, as against $33.944 billion recorded on July 25, 2023.

According to the data, Nigeria’s external reserves, the firepower behind the Central Bank’s defence of the naira maintained a steady decline by 8.47 percent year-to-date to $33.92 billion as of August 4, 2023, from $37.06 billion as of January 3, 2023.

Nigeria spends 96.3 percent of revenue on debt servicing in 2022 from 83.2 percent in 2021 which shows how the fiscal deficit has worsened the nation’s public debt stock, according to the World Bank.

Africa’s largest economy’s external reserves by virtue of statute are segregated into three distinctive portions, namely the CBN, the Federal Government of Nigeria (FGN) and the Federation reflecting ownership of the reserves.

The Central Bank receives foreign exchange inflows from crude oil sales and other sources of revenue on behalf of the government. Such proceeds are purchased by the Bank and the Naira equivalent is credited to the Federation account.

These proceeds are shared each month, in accordance with the constitution and the existing revenue-sharing formula. The monetized foreign exchange, thus, belongs to the CBN. It is from this portion of the reserves that the Bank conducts its monetary policy and defends the value of the Naira.

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Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the external reserves are used to support the naira and fund imports.

He said the foreign exchange reserves have been declining as a result of pressure to defend the naira through the CBN’s interventions. He noted that the decline has to do with the level of inflows and outflows and the impact of low oil production and oil theft.

“We are hoping that with the ongoing reforms, it will get better, Yusuf told BusinessDay by phone.

Festus Adenikinju, a member of the Monetary Policy Committee said in his March 2023 personal statement that the decline in gross external reserves was driven by the rise in debt service payments and foreign exchange (FX) swap transactions.

He said the FGN’s net fiscal operations resulted in an expansionary fiscal deficit in February 2023 (m-o-m). The overall deficit rose by -N539.01 billion in February 2023 compared to – N417.75 in January 2023. Both government expenditure and revenue declined. FGN Debt increased owing to new borrowings to finance the deficit in the 2022 budget and new loans by subnational governments.

The Nigerian foreign exchange market continues to face challenges with the naira’s depreciation against the greenback even as the oil market continues to show buoyancy with prices rising on global supply concerns, analysts at Cowry Asset Management Limited said.

The FX market closed on Monday with naira losing its value against the dollar by 4.26 percent due to low liquidity.