Nigeria’s foreign reserves decline by $163.67 million- CBN

Official forex reserves status data report obtained from the Central Bank of Nigeria (CBN) indicated that forex reserves declined by $163.67 million last week.

It capped a 10-week consecutive fall.

The data showed that forex reserves depleted from $37.211 billion by January 16, 2023, to $35.78 billion at the weekend.

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Nigeria’s external reserves, which closed in 2022 at about $37.08 billion, had picked at $37.211 billion on January 16, 2023.

It has since been on the decline, dropping to a lower level every week over the past 10 weeks.

Analysts agreed that Nigeria’s shaky forex reserves position was directly due to the CBN’s currency management stance.

The apex bank’s fixed-rate, controlled exchange policy has seen the emergence of parallel markets with some 290 basis points between the official rate and the market-driven, unofficial parallel market.

Over the past 10 weeks, the naira had depreciated from N453.58 per dollar to N460.98 per dollar.

The investment banking group, Cordros Capital, said Nigeria’s inability to boost its forex reserves and meet the demand for forex will linger over the short-to-medium term as there is no “positive signal that denotes an improvement in forex supply relative to the pre-pandemic levels”.

Cordros Capital noted that low crude oil production and elevated premium motor spirit (PMS) under-recovery costs have continued to undermine the government’s internal forex generation while foreign portfolio investors (FPIs) who have historically supported supply levels in the official market have remained on the sideline due to the forex management policy.

Analysts at Afrinvest at the weekend called for a rethink of the apex bank’s strategy and focus on forex management.

The apex bank had last week expressed optimism that its many initiatives such as the RT-200 FX programme, Naira-4-dollar, and other policies targeted at attracting remittances would continue to improve accretion to external reserves and improve liquidity.

“In our view, the rebate on both policies (RT-200 FX programme and Naira-4-dollar) is relatively unattractive to lure exporters and diasporans to the official window given the large spread between the official and parallel market rates.

“Hence, the focus of the CBN should be more tilted to addressing capital control policies and the multiplicity of the forex window which has continued to hinder the inflow of forex into the economy – foreign portfolio investment (FPI) and foreign direct investment (FDI) are currently at the lowest level in more than half a decade,” Afrinvest stated at the weekend.

FDI dipped by 5.03 per cent to $147.16 billion while FPI dropped by 20.97 per cent to $757.32 billion in the second quarter of 2022, compared with the first quarter.

Managing Director of Financial Derivatives Company (FDC), Bismarck Rewane said lower forex supply amid elevated demand would continue to exert pressure on the naira in the near term.

Citing global oil price movement, Rewane noted that the bearish outlook for oil will negatively affect Nigeria’s export earnings by approximately $35 million.

“A reduction in export earnings would deplete the already-falling external reserves and weaken the naira,” Rewane stated.

He noted that the forex market has not been adequately supplied due to a decline in forex inflows with only five per cent of manufacturers able to access forex through the official window. More than 95 per cent of forex is sourced from the parallel market

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