The Central Bank of Nigeria, (CBN) said the that external reserves have depleted by 11.55 per cent amounting to ($4.28 billion) year-to-date as the naira has steadily fallen against the dollar in 2023. The Apex Bank, also hinted that the continued decline in foreign currency reserves followed low revenue from crude oil sales and increased demand for foreign exchange (FX), among other factors.

The Data from the Central Bank of Nigeria (CBN) showed that external reserves, the stock of foreign assets held by the apex bank, declined to $33,78 billion as of December 20, 2023, from $37.06 billion recorded on January 3, 2023. Nigeria relies on oil exports, but oil revenue has been declining due to various factors such as geopolitical events and market conditions which can cause oil prices fluctuations.

As a result, Nigeria’s naira has steadily fallen against other currencies due to pent-up demand amid the dollar supply shortage. CBN data indicated that the dollar was quoted at N1,039.63 as of December 22, 2023, as against N460.93 quoted in the year’s first quarter.

Furthermore, at the parallel market, the naira weakened by 62.16 per cent as the dollar was sold for N1,200 as of December 25, 2023, compared to N740 at the beginning of the year. But according to the CBN Boss, Nigeria has the potential to build a prosperous economy among the committee of nations. In his words, “We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies,” said Yemi Cardoso, governor of the CBN at the Chartered Institute of Bankers of Nigeria (CIBN)’s bankers’ dinner.

According to the CBN’s most recent data on external reserves, Nigeria’s gross official reserves fell by $392 million month-on-month (m/m) to $33.0bn in November 2023. The decline implies that the gross external reserves have depleted by about $4.1bn over the 11 months to November 2023, indicating an average monthly depletion rate of $371m, according to a report by FBNQuest.

In addition to demand pressure from the CBN’s interventions on the foreign exchange market, a secondary factor responsible for the marked decrease is coupon payments on Nigeria’s Eurobonds, totaling roughly $149m during the month.
Report indicated that total reserves at the end of November 2023 covered 7.7 months of merchandise imports based on the balance of payments for 12 months.

However, in comparative terms, the external reserve position of South Africa and Egypt, the other two markets which were track on the continent, improved m/m. South Africa’s international liquidity position, which comprises its gross reserves, gold reserves, and forward positions, is netted off for some less liquid portion of the reserves, increased by $809m m/m.

The m/m rise was attributed to higher gold prices, foreign currency valuation adjustments, and asset price fluctuations. Egypt’s external reserves saw a modest increase of $70m to $35.2bn. Notably, these reserves have shown a steady recovery, rebounding from a sharp decline in 2022 attributed to challenges in the balance of payments.

The new CBN leadership has begun addressing the structural issues with the FX policy, starting by clearing some of the FX backlog. “Looking forward, we expect that recent international engagements by the government will result in much-needed foreign exchange liquidity into the country,”

Tobi Reuben Adetunji
Tobi Reuben Adetunji
Tobi Reuben Adetunji, holds a Degree and Master Degree in Political Science from the prestigious, Obafemi Awolowo University, ile-ife Osun and University of Lagos Akoka, Lagos State respectively. His research interests revolve around; African Politics and Economy, Climate Change, Artificial Intelligence, Renewable Energy and information Technology.

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