Naira is expected to fall to N500 per dollar on the Investors & Exporters FX window as Nigeria’s external reserves, which stood at $37.21 billion as of January 17, 2023, is also expected to fall to $34.9 billion at the end of 2023, the Nigerian Economic Summit Group (NESG) has said.
The decline in the official foreign exchange reserves will be driven by the Central Bank of Nigeria’s intervention in the forex market and shortage in FX inflow at the end of 2023.
In 2022, the country’s external reserves declined by 8.2 percent to US$37.1 billion from US$40.5 billion at the start of the year.
NESG’s 2023 macroeconomic outlook report stated that the decline in forex supply will further support exchange rate depreciation.
The report also said FX shortage will support the black market operation, where the exchange rate will depreciate even at a faster rate.
Naira has continued to depreciate at the parallel market, falling to N747 against the dollar on Thursday.
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At the I&E forex window on Wednesday, Naira appreciated by 0.05 percent as the dollar was quoted at N461.25 as against the last close of N461.50/$1 on Tuesday.
In 2022, Naira depreciated by 2.4 percent and 30.1 percent in the I&E and the parallel market rates to N451/US$ and N745/US$, respectively.
Consequently, the premium (the gap) between the official and the parallel markets expanded from N55 (18 percent of the official rate) at the beginning of the year to N294 (65 percent) at the end of 2022.
In December 2022, the monetary authority initiated the redesign of the N200, N500, and N1,000 notes to manage Naira liquidity.
The action, according to the report, triggered further depreciation of the Naira against the US dollar in the foreign exchange market, especially the parallel market rate.
Aside from the CBN currency redesign, other issues that triggered Naira depreciation include US monetary policy tightening that strengthened the US dollar and the proliferation of political activities with the US dollar.
The report noted that the year 2022 brought a mix of heightened political tension and deteriorating socioeconomic situations for most countries across the globe, including Nigeria.
“Nigeria’s attractiveness as an investment destination faltered in the year compared with the pre-pandemic level of foreign investment inflow.
In 2022, the total foreign investment inflow increased to $4.0 billion in January-August from $3.9 billion in the same period in 2021,” the report stated.
The report noted that as of the first eight months of 2022, Foreign Direct Investment (FDI) inflow stood at $340 million, representing an 11.0 percent increase
from $310 million in the corresponding period of 2021.
Despite this, FDI inflows into Nigeria continued to lag behind other emerging markets, such as Egypt (US$12.5 billion) and South Africa (US$4.3 billion), within the same period.
According to the report, Nigeria’s trade outcomes improved in 2022 on the back of the oil price (Bonny Light) increase.
In the first three quarters of 2022, the country’s total trade increased by 29.7
percent to N37.4 trillion and a trade surplus of N3.4 trillion was achieved. This performance, NESG said was motivated by a 43.9 percent increase in exports against a 14.1 percent increase in imports.
The report said the export growth was driven by crude oil export, accounting for 79.2 percent of total export, and grew by 59.6 percent.
Non-oil exports also increased by 41.8 percent. On the other hand, the import was driven by refined petroleum products, machinery and transport equipment.
