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Nigeria’s foreign exchange reserves have witnessed a substantial decline, dropping by approximately $1.02 billion within a span of 18 days as the Central Bank of Nigeria intensifies efforts to safeguard the naira.
According to the latest data from the CBN, as of March 18, 2024, the FX reserves stood at $34.45 billion. However, by April 3, they had plummeted to $33.50 billion.
Prior to this recent decline, the reserves had been on a steady growth trajectory, experiencing a remarkable surge over 43 days between February 5 and March 18, 2024, during which they appreciated by $1.28 billion.
The CBN attributed this growth to increased remittances from Nigerians abroad, heightened interest from foreign investors in local assets, and reforms in the foreign exchange market, coupled with an uptick in oil production.
However, since March 18, there has been a notable drawdown in the reserves. After reaching a peak of $34.45 billion, they gradually declined, registering $34.39 billion on March 19, $33.57 billion by April 2, and finally $33.50 billion by April 3.
This rapid decline of $1.02 billion within 18 days underscores the pressure on the reserves as efforts persist to stabilize the local currency.
The CBN has been actively intervening in the foreign exchange market to support the naira, often selling dollars to maintain liquidity. These interventions have likely contributed to the decrease in FX reserves.
During this period, the CBN announced two significant measures: the complete clearance of the valid foreign exchange backlog and the facilitation of foreign exchange sales to Bureau De Change operators in Nigeria at an exchange rate of N1,251/$1.
Typically, Nigeria’s foreign exchange reserve reflects its balance of payments and ability to meet international obligations. A substantial decline can erode investor confidence and potentially lead to a credit rating downgrade, impacting borrowing costs.
The International Monetary Fund (IMF) has projected a significant reduction in Nigeria’s foreign reserves, foreseeing a decline to $24 billion by 2024. The IMF cited challenges in Nigeria’s financial account, driven by factors such as the absence of new Eurobond issuances, substantial repayments of existing funds and Eurobonds totaling $3.5 billion, and continued portfolio outflows.
Meanwhile, the federal government has announced plans to issue domestic bonds denominated in foreign currency in the second quarter of 2024, specifically in June. Some economists believe this move could help stabilize the naira and the nation’s reserves.
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