Nigeria’s foreign reserves have taken a significant hit, declining by almost $1.02 billion in 18 days as the Central Bank of Nigeria increases efforts to defend the naira.
On March 18, 2024, the reserves stood at about $34.45 billion, but by April 3, it dipped to $33.50 billion.
Reasons for initial boost in reserves
Before the decline, the reserves grew steadily, seeing a robust 43-day increase between February 5 and March 18, 2024, rising by $1.28 billion.
The CBN attributed the increase to rising remittances from diasporan Nigerians and increased interest from foreign investors in local assets, including bonds.
Also, the reforms in the FX market and raised crude oil output contributed to the increase.
However, a trend reportedly emerged since March 18, showing a reserve drawdown.
Why FX reserves is declining
After plateauing at $34.45 billion, the reserves declined gradually to $34.39 billion on March 19, $33.57 billion on April 2, and $33.50 by April 3.
The accelerated $1.02 billion decline in the last 18 days shows the pressure on the reserves as efforts mount to stabilise the naira.
The apex bank intervened in the FX market to aid the naira’s recovery, which various economic issues have pressured.
The CBN interventions involve dollar sales authorised forex dealers to maintain liquidity in the forex market.
According to Punch, within 18 days, CBN announced clearance of verified FX claims and facilitated the sale of forex to Bureau de Change (BDC) operators in Nigeria at N1,251 per dollar.
Nigeria’s FX reserves show the country’s balance of payments and ability to meet international obligations.
Investors can lose confidence due to a depleted reserve, impacting the country’s borrowing costs.
The naira could depreciate further
Analysts say the reserves’ decline could spell doom for the naira, which has shown signs of stability recently.
They say the local currency may have found its bearing after floating by the Nigerian government.
The naira, which has remained relatively stable in recent weeks, appreciated N1,548.5 per dollar from N1,552.78 on Thursday, January 23, 2024, representing 0.28% in the official window.
FDQ Exchange data show that currency dealers quoted the dollar at a high of N1,554 per dollar and a low of N1,548.25 in the official window.
