Nigeria’s Foreign Reserves Tumble to Lowest Level in 2 Years, CBN Loses More Firepower To Defend Naira

Nigeria’s Foreign Reserves Tumble to Lowest Level in 2 Years, CBN Loses More Firepower To Defend Naira

  • Nigeria's foreign reserves continue its downward trend despite recent reforms embarked by the Central Bank of Nigeria
  • The latest data from the CBN shows that Nigeria's reserves is now at a two-year low amid reduced earnings from crude oil sales
  • Muda Yusuf, Chief Executive Officer, CPPE spoke to Legit providing insight into why the foreign reserves is depleting

Nigeria’s foreign reserves which gives the Central Bank of Nigeria (CBN) the firepower to defend the naira has declined to two-year low.

According to the latest data obtained from CBN's website, Nigeria's foreign reserves dropped to $33.98 billion Wednesday, July 19th, 2023.

Foreign reserves
Nigeria foreign reserves continue to decline Photo credit: tiero
Source: Getty Images

This is the lowest level Nigeria's foreign reserve has touched since August, 30, 2021 when it was $33.93 billion

Nigeria's reserves has been on a downward trend despite expectations that the CBN decision to float the naira will lower the pressure on the foreign reserves.

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In a recent note by FBN Quest, a Lagos-based investment firm reads

“A key benefit of the policy is the elimination of losses resulting from the arbitrage spread, which could help alleviate pressure on the gross official reserves
“Provisional data from the CBN shows that the regulatory bank’s total FX sales through its official windows amounted to almost $15.3 billion in 2022, resulting in an estimated opportunity cost of approximately N4.6 trillion"

Monthly breakdown of Nigeria's foreign reserves in 2023

  • January 31: $36.99 billion
  • February 27: $36.67 billion
  • March 31: $35.49 billion
  • April 28: $35.25 billion
  • May 30: $35.09 billion
  • June 30: $34.11 billion
  • July 19: $33.98 billion

What are foreign exchange reserves, and why are they important?

Foreign exchange reserves are assets denominated in other currencies, like dollars. The reserves are utilised to back up liabilities and influence monetary policy.

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Foreign reserves serve as a buffer to support the stability of the Nigerian currency in the international foreign exchange market.

When the CBN intervenes in the foreign exchange market, it uses its foreign reserves to influence the supply and demand of the naira.

The foreign reserves also serve as a means to protect against external shocks and ensure the country's ability to meet its international obligations.

Analyst provide reasons for depleting foreign reserve

Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, explained to that the depleting foreign reserves are due to overdue payments made by the CBN.

He noted that one of the payments is the $500 billion matured Eurobond payment made in June 2023, along with some other matured debt services.

Yusuf stated:

"The reserves are mostly funded by crude oil sales, and if NNPC is not remitting enough and there are matured obligations to settle, CBN will have to dip hands into the reserves to make payment"

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Naira bounces back as dollar exchanges same rate in official, black FX markets

Meanwhile, in another report, the naira to the dollar exchange rate at the official and black markets met for the first time in eight years and closed at N756.

This followed the recent foreign exchange reforms embarked upon by the Central Bank of Nigeria (CBN).

Kingsley Obiora, the CBN’s deputy governor, has further explained the ongoing operational reforms in Nigeria's foreign exchange markets.


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