Nigeria’s currency has lost about 2.23 per cent of its value against the dollar in almost one month due to a persistent rise in demand for the greenback at the parallel foreign exchange (FX) market segment.
According to analysts, the continued loss in the value of the Naira followed the scarcity of dollars occasioned by low inflows from oil receipts, foreign capital and Diaspora remittances, among others.
Consequently, the external reserves, which give the Central Bank of Nigeria (CBN) the firepower to defend the Naira, have steadily declined.
In the last month, Nigeria’s foreign exchange reserves have declined by 0.53 per cent to $33.74 billion as of August 24, 2023, from $33.92 billion recorded on August 3, 2023, data from the CBN showed.
The CBN’s data showed that the reserves declined by 8.47 per cent year-to-date to $33.92 billion as of August 4, 2023, from $37.06 billion as of January 3, 2023.
Data gathered from Abokifx and street traders show that one dollar traded at N915/$1 during the intraday trading on Monday, compared to N895/$1 sold early week of the month (on August 5 2023).
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The demand for dollars mainly was from importers who could not access foreign exchange from the official segment and individuals who wanted to travel for business, tourism, medical or school.
“There are enough dollars in the market, but demand is high”, said Abubakar, one of the street traders in Lagos.
Last week, the value of the Naira to the dollar weakened by 526 bps to close at N778.42/$ at the Investors and Exporters FX Window, Nigeria’s official FX market.
On August 18, 2023, the CBN released a new operational guideline for the sale of forex by Bureau De Change (BDC) operators.
According to the new guideline, the spread on buying and selling by BDC operators shall be within an allowable limit of -2.5 per cent to +2.5 per cent of the Nigerian foreign exchange market window weighted average rate of the previous day.
“The -2.5 to +2.5 per cent is the spread the BDCs are allowed to make in buying and selling on their rates. The anchor rate to calculate the distance is the closing average weighted rates in the I&E window of the previous day on the following day, said Aminu Gwadabe, national president of the Association of Bureau De Change Operators of Nigeria (ABCON).
Festus Adenikinju, member of the Monetary Policy Committee (MPC), said in his March 2023 personal statement that the decline in gross external reserves was driven by the rise in debt service payments and foreign exchange (FX) swap transactions.
He said the FGN’s net fiscal operations resulted in an expansionary budgetary deficit in February 2023 (m-o-m). The overall deficit rose by -N539.01 billion in February 2023 compared to – N417.75 in January 2023. Both government expenditure and revenue declined. FGN Debt increased owing to new borrowings to finance the deficit in the 2022 budget and new loans by subnational governments.