Net foreign exchange (FX) flow through the Nigerian economy increased to US$3.08 billion in July 2021 from US$2.38 billion in June 2021, according to the Central Bank of Nigeria (CBN).
This followed some of the foreign exchange measures taken by the CBN to increase supply and quell demand pressure.
In July 2021, the CBN discontinued foreign currency sales to Bureau De Change operators but increased its sales of Invisibles to commercial banks to meet legitimate foreign exchange demand and sustain the stability in the foreign exchange market.
Hassan Mahmoud, director, monetary policy department, CBN who spoke at the ongoing workshop for Finance Correspondents Association of Nigeria (FICAN) and business editors in Gombe State, noted that the balance of trade moderated by 52.56 percent to a deficit of N1,870.77 billion in Q2 2021 from a deficit of N3,943.45 billion in Q1 2021, resulting from a 74.72 percent increase in export relative to a 1.45 percent increase in import.
Consequently, Nigeria’s current account deficit improved to US$1.75 billion in Q1 2021(1.76 % of GDP) relative to US$5.26 billion (4.53% of GDP) in Q4 2020, due to a lower deficit in the goods account, arising from a decline in non-oil import and higher export receipts.
Represented by Yusuf Dauda Bulus, deputy director, monetary policy department, he said the gross external reserves increased by 7.41 percent at the end-August 2021 relative to its value at end-July 2021 due to a 159.81 percent or US$3.33 billion increase in the receipt of Special Drawing Rights (SDR). A correlation analysis showed a negative paradoxical relationship between the gross external reserves and the exchange rates, as well as, a negative relationship between oil price and the gross external reserves.
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Presenting a paper on the ‘state of the global and domestic economy, major influences and outlooks after the extreme disruption’, he said because the country’s exports are limited by a weak commodities value chain, deficient foreign exchange inflow could put further pressure on the naira.
On the domestic outlook, he said gradual economic recovery is expected to continue in Q3, through Q4 2021, supported by the increase in vaccination coverage as domestic and international economic activities pick up.
The CBN estimates for real GDP in the third and fourth quarters of 2021 are 3.93 and 2.46 percent, respectively. Growth is expected to be driven by continued progress in the vaccination program; increased global demand and recovery in oil prices; access to finance by the private sector (households and SMEs), driven in part by CBN intervention policies.
Also, he said the swift operationalization of InfraCo and the floating of Eurobonds worth US$6.2 billion (N2.34 trillion) to finance infrastructure as well as speedy implementation of the Economic Sustainability Plan (ESP) stimulus of N2.3 trillion would boost employment and investment (households and SMEs).
On the downside, Mahmud said due to the lingering Covid-19 pandemic, insufficient electricity supply and heightened insecurity concerns, households and businesses may continue to exercise caution in their consumption and investment decisions.
Overall, he said the gradual upscale of domestic economic activity is expected to keep prices moderate in the near term due to CBN and Federal Government stimulus in the real sector. However, in the medium to long term, average domestic consumer prices are expected to remain sticky downward because of persistent pressure on the naira, massive fiscal deficits and debt overhang, upward pressure on diesel prices as a result of sectoral deregulation provided for in the Petroleum Industry Act (PIA), and high electricity costs.
