CBN report shows Nigeria’s foreign reserves drop by $950m in 17 days

Nigeria’s foreign exchange reserves have plummeted by around $1.02 billion in just 18 days as the Central Bank of Nigeria (CBN) ramps up efforts to defend the naira.

The FX reserves stood at $34.45 billion on March 18, 2024, but by April 3, they had plummeted to $33.50 billion, according to the most recent CBN data.

Prior to the present drop, the reserve had been continuously expanding, including a stunning 43-day rise from February 5 to March 18, 2024, during which it increased by $1.28 billion.

The CBN attributed the growth to increasing remittance payments from Nigerians overseas and increased interest from foreign investors in local assets, such as government debt instruments.

In addition, foreign exchange market changes and increased oil output helped boost reserve growth.

However, the pattern after March 18 has shown a considerable decrease in the reserve. After peaking at $34.45 billion, it steadily decreased to $34.39 billion on March 19, $33.57 billion by April 2, and $33.50 billion by April 3.

This quick fall of $1.02 billion in 18 days highlights the pressure on the reserve while efforts to stabilise the local currency persist.

The CBN has actively intervened in the foreign exchange market to support the naira, which has been under pressure from a variety of economic issues. These interventions frequently involve the sale of dollars to maintain market liquidity, which has most certainly contributed to the decline in FX reserves.

During the 18-day review period, the CBN made two noteworthy pronouncements. First, it claimed that all valid foreign exchange backlogs had been cleared. Second, it permitted the sale of foreign exchange to Nigerian Bureau de Change operators at an exchange rate of N1,251/$1.

Nigeria’s foreign exchange reserves typically represent the country’s balance of payments and ability to meet international obligations. A significant fall in reserves can erode investor trust and potentially lead to a credit rating downgrade, increasing the nation’s borrowing costs.

The International Monetary Fund reportedly forecast that Nigeria’s foreign reserves would fall significantly, reaching $24 billion by 2024. The IMF predicted a difficult period for Nigeria’s financial account in 2024–25, driven by a lack of fresh Eurobond issuances, significant repayments of current funds and Eurobonds totaling $3.5 billion, and ongoing portfolio outflows.

Meanwhile, the federal government has announced that it will issue domestic bonds denominated in foreign currency in the second quarter of this year, namely in June, a move that some analysts believe will stabilise the naira and the nation’s reserves.