FX inflows of $2.3bn fails to shore up external reserves

Nigeria’s economy recorded a higher net foreign exchange (FX) inflow in August 2023, but the decline in foreign currency reserves and naira pressure remain.

Data from the Central Bank of Nigeria (CBN) showed that foreign exchange flows through the economy recorded a net inflow of US$2.33 billion, an increase of 2.9 per cent, relative to the US$2.27 billion in July 2023.

The FX inflow was driven mainly by increased inflow from autonomous sources. According to the latest economic report of the CBN.

In August 2023, external reserves declined by 0.99 per cent to US$32.98 billion, compared with the US$33.31 billion at the end of July 2023.

Current data from the CBN showed that foreign currency reserves have declined to $32.88 billion as of December 4, 2023.

The report stated that external reserves at $32.98 billion could cover 6.3 months of import for goods and services or 8.7 months for goods only, using the second quarter of 2023 import values. Furthermore, the reserves to short-term debt, at 115.92 per cent, exceeded the threshold of 100.0 per cent.

Aggregate foreign exchange inflow into the economy increased by 5.8 per cent to US$5.71 billion in August, compared with US$5.40 billion in the preceding month.

The report indicated that foreign exchange outflows also rose by 8.0 per cent to US$3.38 billion in August, from US$3.13 billion in the preceding month.

Foreign exchange inflow through the Bank declined by 5.9 per cent to US$2.44 billion in August 2023, from US$2.59 billion in July 2023. Outflow through the Central Bank, however, rose by 6.3 percent to US$2.98 billion from US$2.80 billion in the preceding month.

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Autonomous inflow rose by 16.6 per cent to US$3.28 billion, from US$2.80 billion in the previous month. Similarly, autonomous outflow increased by 22.3 per cent to US$0.40 billion in August 2023, from US$0.32 billion in July 2023.

A net inflow of US$2.88 billion was recorded through autonomous sources, compared with the US$2.48 billion in July 2023. The CBN recorded a net outflow of US$0.55 billion,compared with US$0.22 billion in the preceding month.

The domestic currency, naira, appreciated against the US dollar, in the review period. The average exchange rate of the naira per US dollar appreciated by 1.1 per cent to N762.12/US$ in August 2023 from N770.32/US$ in the preceding month.

The average foreign exchange turnover at the Nigerian Autonomous Foreign Exchange Market (NAFEM) increased by 15.5 per cent to US$95.29 million in August 2023, compared with the US$82.48 million in July 2023.

“There is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira,” said Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise.

He said the economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed.

“Sadly, these outcomes are manifesting at a time when the country’s foreign reserves have been substantially encumbered,” Yusuf said.

Marvelous Adiele, Senior Associate, Parthian Partners, said in September 2023, that the limited supply of USD has been a major factor hampering banks’ ability to meet customers’ demands.

“Consequently, we have seen most demand going to the parallel market leading to widening gap between the parallel and official market rates.

The most obvious response to this would be to sort out the USD supply issues,” she said.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.