Nigeria’s external reserves have dropped to the lowest level in three months, a few days after the Central Bank of Nigeria (CBN) paid part of foreign airline’s trapped funds.
The CBN had on August 26, 2022 released the sum of $265 million out of $650 million trapped funds.
The foreign exchange reserves, which give the central bank the firepower to defend the naira, declined to $38.69 billion as of September 14, 2022 from $38.96 billion on August 26, 2022, according to data from the CBN.
The nation’s external reserves have declined by $1.81 billion this year from $40.5 billion at the start of the year.
Prior to the part payment, foreign airlines had lamented their inability to access funds from tickets sold in the country as a result of dollar shortage.
Most of them resorted to buying dollars from the black market for as high as the current rate of N710 to a dollar against the official rate of N434 to a dollar.
“The CBN released $265 million out of the $650 million in blocked funds, prompted by Emirates who threatened to exit the Nigerian market,” said Bismarck Rewane, managing director of Financial Derivatives Company, in his September presentation at the Lagos Business School.
He said airlines were still not opening up bookings because only 50 percent of arrears had been paid.
“The backlog is still growing as December bookings build up for visiting friends and relatives,” Rewane said.
According to him, Nigeria’s oil production rose slightly by 7,000 barrels per day (bpd) to 1.183 million bpd in July, still below OPEC+ quota (1.80 million bpd) for July.
Rewane was concerned that pipeline vandalism, theft, poor upstream infrastructure and other operational challenges remain threats to oil production in Nigeria, and would impair government revenue and external reserves accretion.
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Analysts believe that the CBN can repatriate the funds but it is being cautious of the demand pressure in the foreign exchange market.
“In the short term, the CBN should work out a phased repatriation of foreign airlines’ trapped funds while they should be allowed to pay for aviation fuel and other local expenses in naira. Ultimately, the long-term solution to our FX problems will only come from rate harmonisation to dis-incentivise speculative behaviour, improve exports and promote import substitution,” said Taiwo Oyedele, head of tax and corporate advisory services at PwC.
According to him, there should be both an immediate and long-term strategy to address forex scarcity, which seems to be deteriorating by the day.
“Bear in mind that almost every sector of the economy is facing difficulties in sourcing FX including manufacturers; so the airlines are just one out of many,” he said.
One of the reasons for the decline in external reserves, according to a report by FBNQuest, was the exit of foreign portfolio investors from Nigeria. Portfolio investments constitute a major source of capital into the country.