Share this article

Nigeria’s external reserve fell to $37.17 billion as of 15th of November 2022, data from the central bank of Nigeria confirms.

This is the lowest level of the external reserves this year and the lowest level since September 30th, 2021 when the country faced a barrage of currency depreciation.

Nigeria is still facing massive currency volatility that has seen the exchange rate between the naira and dollar oscillate between gains and losses. Even so, the disparity between black market rates and the official exchange continues to widen.

Some context: The exchange rate has lost a whopping $1.8 billion in net outflows since September 1st, 2022 when it was just around $39 billion.

The drop in external reserve is surprising when you consider that data from the Bureau of Statistics recently confirmed capital importation was up 98% year on year.
The increase recorded was due to the 120.8% surge recorded in the country’s portfolio investment. Foreign portfolio investments in the review period increased from $551.37 recorded in Q2 2021 to $1.2 billion.
This suggests some of the capital inflows may have also exited the country as is typical with portfolio inflows.

So why the drop: Nigeria’s external reserves are largely funded from export proceeds from the sale of oil and gas to other countries.

However, rising cases of crude oil theft have dented a blow on Nigeria’s export potential and thereafter the country’s external reserves.
Nigeria’s external reserves are also funded from foreign currency loans such as multilateral loans from the likes of the World Bank or IMF or from the sale of Eurobonds.
However, Nigeria has not tapped the Eurobond market in over a year meaning the central bank has had to rely mainly on crude oil sales.
Nairametrics opines the drop in external reserves is likely due to the central bank’s defense of the naira in recent weeks.

What this means: A drop in external reserves poses a challenge to the ability of the central bank to maintain some of the gains recorded against the dollar on the black market.

The lower the external reserves the higher the likelihood of the central bank considering a devaluation of the naira to stem the outflows.
The central bank is unlikely to devalue before the elections as it continues to pursue other means of stifling demand. A recent measure was the introduction of new naira notes.

Silver lining: Nigeria’s daily crude oil production output rose above 1 million barrels per day to an average of 1,014,485 BPD in October 2022.