CBN Report Shows $9 Billion Drop in Forex Demand Over Past Year as Naira Struggles Against Dollar

CBN Report Shows $9 Billion Drop in Forex Demand Over Past Year as Naira Struggles Against Dollar

  • CBN's report has shown that importers' and other forex-related businesses' demand for forex plummeted by $9 billion
  • The CBN's Forex allocations to sectors of the economy dropped from $29.98 billion in 2022 to $21.12 billion in 2023
  • In spite of recent improvements in liquidity, the process of stabilizing the naira in the forex market is still ongoing

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The demand for foreign exchange by individuals and companies engaged in importation and other forex-related activities decreased by 42% year-on-year.

The total sectoral utilization of foreign exchange indicated that 19 sectors and services received $21.12 billion in forex allocations in 2023.

Cardoso naira dollar
The narrowing gap between the official and parallel markets has forced importers to reduce their forex demand for goods and raw materials. Photo credit - TVC News, CBN
Source: UGC

This amount represents a 41.9% decline, or $8.87 billion, compared to the $29.98 billion allocated in 2022.

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These financial statistics were detailed in the Central Bank of Nigeria's quarterly report.

CBN Forex allocation

Forex allocation is the process by which the CBN distributes foreign exchange to different sectors of the economy, including individuals, businesses, and government agencies, based on specific criteria and priorities.

In June 2023, the CBN implemented a floating exchange rate system for the naira, merging all forex market segments.

This change resulted in a significant depreciation in the value of the naira, which declined from 471/$ to approximately 1,485/$ in the Investors and Exporters FX window.

Amid ongoing exchange rate volatility, the naira further weakened in the parallel market, reaching 1,400/$ last week.

The narrowing gap between the official and parallel markets has forced importers to reduce their forex demand for goods and raw materials, impacting manufacturing, healthcare, education, and travel sectors.

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Financial experts have also suggested that this situation may reflect the central bank's forex liquidity shortage, causing dollar buyers to seek alternatives in the parallel market.

Uzo Umunna, a financial analyst, told that Nigeria experienced a decline in forex demand due to several factors.

He said:

"The CBN policies aimed at stabilizing the naira, such as reducing forex allocations to importers and implementing stringent currency controls, have curbed demand.
"Additionally, a decrease in import activities driven by higher local production and a push for self-sufficiency has lessened the need for foreign currencies."

He added that the economic impacts of fluctuating oil prices also contribute to this decline, as businesses and individuals adjust their spending and investment strategies in response to the economic uncertainties.

Despite recent improvements in liquidity that have addressed all FX backlogs, the process of stabilizing the naira in the exchange market is still ongoing and has not yet been fully achieved.

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Expert speaks on solutions to naira volatility

In related news, reported that Muda Yusuf, an economist, has advocated for a reduction in market volatility.

In his view, when dealing with foreign exchange, volatility encourages speculation and fuels unpredictability.

Yusuf said this while responding to the volatility in the forex market, which has caused the Nigerian naira's value to fluctuate upward and downward in relation to the US dollar.


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Victor Enengedi (Business HOD) Victor Enengedi is a trained journalist with over a decade of experience in both print and online media platforms. He holds a degree in History and Diplomatic Studies from Olabisi Onabanjo University, Ogun State. An AFP-certified journalist, he functions as the Head of the Business Desk at Legit. He has also worked as Head of Editorial Operations at Nairametrics. He can be reached via and +2348063274521.

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