Naira ends week flat as external reserves decline

The naira ended the week flat in the foreign exchange market as the external reserves declined in the early part of the year.

According to data from the Central Bank of Nigeria (CBN), the naira lost 0.2 percent or N3.50 as the dollar was quoted at N1,548 on Friday compared to N1,544.50 quoted the previous Friday at the Nigerian Foreign Exchange Market (NFEM).

NFEM rate is derived at volume weighted average and stands as the official exchange rate for the day, the apex bank explained.

On day-on-day trading basis, the naira gained 0.8 percent as the dollar was sold for N1,548 on Friday as against N1,560 quoted on Thursday at NFEM.

Authorised dealers quoted the dollar at the highest rate of N1,552 on Friday, losing N4 or 2.5 percent compared to N1,548 seen last Friday.

The market recorded the lowest rate of N1,540.20 per dollar on Friday, slightly lower than N1,538 on Friday last week.

In the parallel market, also called black market, the naira depreciated by N12 or 0.8 percent as the dollar was quoted at N1,680 on Friday compared to N1,660 quoted last week.

Nigeria’s external reserves declined by $530 million or 1.3 percent to $40.35 billion as of January 16, 2024 from $40.88 billion recorded at the beginning of the year, data from the CBN indicated.

The decline in external reserves is attributed to international debt servicing obligations and foreign exchange interventions by the CBN.

Nigeria’s foreign debt servicing expenditures totalled $3.6 billion over the nine months from January 31 to September 30, 2024. This marks a 39.8 percent increase, $1.02 billion more than the $2.6 billion spent in the corresponding period of 2023, as revealed by the CBN’s international payments data.

One plausible explanation for the recent dip as noted by Tobi Ehinmosan, analyst at FBNQuest, could be debt repayments. Nigeria, like many nations, services dollar-denominated loans from institutions such as the World Bank, IMF, and China. These repayments, encompassing both principal and interest, are managed by the CBN on behalf of the federal government. The timing of such payments —whether at the beginning, middle, or end of the year—can create temporary declines in reserve levels.

Nigeria’s external reserves are a cornerstone of its economic stability, serving critical functions such as debt servicing and currency support. Muda Yusuf, director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), highlighted these dual responsibilities, while responding to a question on the reason for decline in reserves.