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Nigeria’s Forex Reserves Hit New Low at $35.33BN

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CBN Clears all $7BN FX Legacy Backlog

After a one-week breather, Nigeria’s foreign exchange (forex) reserves reversed to its recent negative trend, dropping by $79.77 million to close weekend at a new low of $35.33 billion.

The latest position represented a new low, after the nation’s forex reserves dropped over 11 weeks to $35.39 billion earlier this month

The nation’s external reserves had dropped by $111.10 million to $35.39 billion, its 11th consecutive weeks of decline.

Nigeria’s forex reserves had lost more than $1.82 billion in nearly three months of a free fall. Official forex reserves status data report obtained from the CBN indicated that forex reserves had depleted from $37.211 billion by January 16, 2023 to $35.39 billion, setting a new low at $35.33 billion at the weekend.

Nigeria’s external reserves, which closed 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 lower level every week over the past 10 weeks.

Most analysts agreed that Nigeria’s shaky forex reserves position and currency crisis were 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.

Analysts have called for major forex and macroeconomic reforms to stem decline and encourage direct and indirect forex inflows into the country.

Analysts at Cordros Capital said they believed the forex crisis “will remain over the short-to-medium term” as there is no positive signal that denotes an improvement in forex supply relative to the pre-COVID-19 levels.

“Moreover, considering the tepid accretion to the reserves given low crude oil production and elevated premium motor spirit (PMS) under-recovery costs, foreign portfolio investors (FPIs) who have historically supported supply levels in the Investors & Exporters Window will be needed to sustain forex liquidity levels in the medium to long-term,” Cordros Capital stated at the weekend.

Analysts at Cordros Capital attributed the persistent slowdown in capital importation to foreign investors’ lacklustre interest in the country “given an unclear foreign exchange framework, an uninspiring macro narrative, elevated global interest rates, and heightened global uncertainties”.

“While we believe a new government will be a breather for the country in the short term as sentiments are likely to improve, we think foreign capital inflows will remain low compared to pre-COVID levels over the medium term in the absence of significant reforms in the forex, fiscal and monetary policy frameworks,” Cordros Capital stated.

Analysts at Afrinvest (west Africa) said Nigeria’s capital importation continues to weaken below its pre-COVID level of $24 billion, “primarily due to the investors’ aversion to subsisting forex policies”.

“Specifically, the prominence of capital controls to manage the ongoing forex crisis complicates fund repatriation from Nigeria and, by the same token, discourages new investments by offshore players,” Afrinvest stated.

According to analysts, the existence of a multiplicity of forex windows muddles clarity around forex administration, subsidises the government sector at the expense of the large private economy, and contributes to the widening premium of parallel market rates to the official market.


The Nation

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