Nigeria’s foreign exchange reserves have plummeted by approximately $1.02 billion over an 18-day period.
This significant drop underscores the intensifying pressure on the country’s currency and the challenges it faces in maintaining stability in the forex market.
As of March 18, 2024, Nigeria’s forex reserves stood at $34.45 billion. However, by April 3, they had dwindled to $33.50 billion, a decrease of $1.02 billion within less than three weeks. This abrupt decline comes after a period of steady growth in the reserves, during which they increased by $1.28 billion over 43 days between February 5 and March 18, 2024.
The CBN had attributed the previous surge in reserves to several factors, including heightened remittance payments from Nigerians living abroad, increased interest from foreign investors in local assets, and reforms in the foreign exchange market.
However, the recent downward trend suggests a reversal of fortunes for Nigeria’s forex reserves.
The central bank’s active interventions in the forex market, aimed at supporting the naira, are likely contributing to the depletion of the reserves. These interventions involve the sale of dollars to maintain liquidity and stabilize the local currency amid mounting economic pressures.
During the period under review, the CBN made significant announcements regarding its forex operations.
It declared the complete clearance of valid foreign exchange backlog and facilitated the sale of forex to Bureau De Change operators at an exchange rate of N1,251/$1. While these measures are intended to address currency challenges, they have contributed to the drain on Nigeria’s forex reserves.
The rapid decline in forex reserves raises concerns about Nigeria’s ability to meet its international obligations and maintain investor confidence. A substantial reduction in reserves could lead to a credit rating downgrade, impacting the country’s borrowing costs and overall economic stability.
The International Monetary Fund (IMF) has projected a further decline in Nigeria’s forex reserves, forecasting a drop to $24 billion by 2024. The IMF’s outlook reflects the challenges facing Nigeria’s financial account, including substantial repayments of existing funds and continued portfolio outflows.
In response to the forex challenges, the federal government has announced plans to issue domestic bonds denominated in foreign currency in the second quarter of this year. This initiative, scheduled for June, aims to stabilize the naira and bolster the nation’s forex reserves.