Nigeria’s foreign exchange reserves have taken a big hit, dropping by approximately $1.02bn within 18 days as the Central Bank of Nigeria steps up efforts aimed at defending the naira.
As at March 18, 2024, the FX reserves stood at $34.45bn, but by April 3, it had dropped to $33.50bn, based on the latest data from the CBN.
Before this current decline, the reserve had been steadily growing.
In fact, there was a remarkable 43-day surge between February 5 and March 18, 2024, during which it appreciated by $1.28bn.
These 43 days surge earlier mentioned must have been due to increased remittance payments from Nigerians abroad and heightened interest from foreign investors in local assets, including government debt securities.
I can say that reforms in the foreign exchange market and an increase in oil production contributed to the reserve growth.
It was noticed that from March 18 there was a significant reduction in the reserve.
The reserve reached its highest point at $34.45bn before it dropped to $34.39bn on the 19th of March.
By April 2nd there was an increase to $33.57bn before dropping to $33.50bn by April 3rd, 2024.
The CBN has been actively intervening in the foreign exchange market to support the naira, which has faced pressure in the last three months from various economic factors. These interventions by the CBN often involve the active selling of dollars in the foreign exchange market to try to support the naira which is a strategy that has likely contributed to the decrease in FX reserves.
In the last 18 days, the Central Bank of Nigeria made two significant announcements.
First, the Central Bank of Nigeria declared the complete clearance of the valid foreign exchange backlog of $7billion.
The second move by the Central Bank of Nigeria was the coordination of the sale of foreign exchange to Bureau De Change operators in Nigeria at an exchange rate of N1,251/$1.
Generally, Nigeria’s foreign exchange reserve reflects the country’s balance of payments which is the difference between (Export and import) of a country and its ability to meet international obligations.
IF THIS SIGNIFICANT DECLINE IN FOREIGN RESERVES CONTINUES IT CAN DAMPEN THE INVESTOR CONFIDENCE AND POTENTIALLY LEAD TO A DECREASE IN CREDIT RATING INTERNATIONALLY WHICH WOULD FURTHER IMPACT THE NATION’S BORROWING COSTS.
