Nigeria’s external reserves have declined by $1.57bn in the first quarter (Q1) of 2023, according to figures obtained from the Central Bank of Nigeria (CBN).
The country’s external reserves, which stood at $36.99bn as of the end of January 1, 2023, fell to $35.42bn as of the end of March 30, 2023.
The Governor of the CBN had attributed the decline to the fall in crude oil prices, and analysts at Cordros Securities believe that FX liquidity issues will remain over the short-to-medium term due to the low crude oil production and elevated PMS under-recovery costs.
They also stated that Foreign Portfolio Investors, who have historically supported supply levels in the Importers and Exporters Forex Window will be needed to sustain FX liquidity levels in the medium to long-term.
This decline in external reserves is a cause for concern as it could lead to a reduction in Nigeria’s ability to finance imports and service its debt obligations. The government and the CBN must take measures to address this issue by diversifying the economy and increasing non-oil exports.
Diversifying the economy will reduce Nigeria’s dependence on crude oil exports and increase its foreign exchange earnings.
The government should invest in sectors such as agriculture, solid minerals, and manufacturing to create jobs and boost economic growth.
Furthermore, the CBN should increase its efforts to attract foreign direct investment (FDI) by creating a favorable business environment and improving the ease of doing business in Nigeria. This will increase the inflow of foreign currency and help to stabilize the external reserves.