Washington D.C.|| Nigeria’s external reserves have dropped by 6.76 percent in the last one month after the Central Bank of Nigeria (CBN) cleared the foreign exchange (FX) backlog.
Data from the CBN showed that the foreign currency reserves declined to $32.120 billion as of April 17, 2024, compared to $34.449 billion recorded on March 18, 2024.
On March 20, 2024, the CBN said it successfully resolved all valid foreign exchange backlogs, amounting to S$7 billion inherited by Olayemi Cardoso-led apex bank.
Cardoso last Wednesday in Washington D.C. explained the CBN’s position on the naira defence, saying, “It is not in our intention to defend the naira, and much as I have read in the recent few days, some opinions concern what is happening with our reserves and the CBN defending the naira.
“If you think back to what our overall policy and philosophy has been, you can see it’s counterintuitive.
“The shift you see in the reserve has nothing to do with defending the naira, and that’s certainly not our objective,” he said.
He attributed the development to a common occurrence in any country’s reserve management, adding that such shifts often occur when debts are due or certain payments need to be made to maintain the country’s credibility.
According to data from the CBN, Nigeria spent $560.52 million on debt service payment as of January 31, 2024.
The International Monetary Fund (IMF) has projected a slight uptick in Nigeria’s government debt as a percentage of its gross domestic product (GDP) for the year 2024.
According to the report, Nigeria’s government debt-to-GDP ratio is expected to rise to 46.6 percent in 2024 from 46.3 percent in 2023.
In its fiscal monitor report released in Washington at the IMF/World spring meetings last week, the IMF said that Nigeria’s debt-service burden has surged to 56 percent of tax revenues, presenting significant fiscal challenges.
According to the governor of the CBN, the drop in the external reserves is to meet debt obligations that are due and a few other normal government obligations. He added that other inflows into the country will lead to an increase in the external reserves,” Ayodele Akinwunmi, relationship manager corporate banking at FSDH Merchant Bank, said.
Cardoso disclosed that about $600 million has flowed into Nigeria’s external reserves.
Nigeria’s currency has been appreciating against the dollar across FX markets following some policy measures by the CBN.
“The recent appreciation of the Naira can be attributed to the strategic interventions by the CBN, notably the clearance of a $4.6bn of the verified backlog of foreign exchange claims, the implementation of the willing-buyer, willing-seller model in the FX market, and the removal of the allowable limit on exchange rates quoted by international money transfer operators (IMTOs), and the CBN’s enhancement of FX liquidity,” analysts at FBNQest said.
A report by FBNQuest noted that in March, the CBN commenced weekly dollar sales of $10,000 to registered Bureau De Change (BDCs) at a rate of N1,251/USD. BDCs were directed to sell to eligible customers at a maximum rate of 1.5 percent above the purchase price.
This has resulted in an over 34 percent appreciation of the naira against the dollar on the official market, according to data from the Financial Market Dealers Quotations (FMDQ).
Although the bank’s efforts to increase foreign exchange liquidity have resulted in the appreciation of the naira relative to major foreign currencies, there are concerns about its impact on the gross official reserves.
“According to CBN data as of April 16th, the gross official reserves balance amounted to $32.2bn, marking a -6.4 percent month-on-month and -2.4 percent year-to-date decrease from $34.4bn (March 15th) and $33.0bn (January 2nd), respectively.
“Despite the challenges posed by lower receipts from crude oil sales due to theft and pipeline vandalism, the reserve balance is expected to receive a boost with the anticipated $1.1bn Afreximbank loan in May.
“The recent monetary policy measures implemented by the CBN are expected to provide support in the near term while longer-term measures are being implemented, the analysts said.
