By Milcah Tanimu

Recent data from the Central Bank of Nigeria (CBN) reveals a significant drop in the country’s external reserves, plummeting by $2.16 billion over the past month. As of April 15, 2024, reserves hit a seven-year low of $32.29 billion, down from $34.45 billion on March 18, 2024.

A Bloomberg report highlights Nigeria’s accelerated spending of foreign exchange reserves, a trend unseen in four years. Concerns arise as the central bank appears to be exhausting its dollar holdings to stabilize the naira, despite earlier promises to allow the currency to float more freely.

Since March 18, liquid reserves have declined by 5.6%, coinciding with the naira’s recovery from historic lows against the dollar, settling at $31.7 billion by April 12. This marks the sharpest decline within a similar timeframe since April 2020, as per Bloomberg’s analysis of CBN data.

Naira’s Performance Since January

At the outset of the year, the naira weakened to approximately N1,900 against the dollar but has recently shown strength, reaching around N1,100 to a dollar.

Last month, the central bank announced the clearance of a backlog of overdue dollar purchase agreements, estimated at $7 billion since the year’s commencement.

Nigeria still maintains a substantial reserve cushion, boosted by rising oil prices and inflows from multilateral loans. With gross reserves hovering around $32.6 billion, the country enjoys import coverage of about six months, according to the International Monetary Fund.

Insights from FMDQ Data

Data from the FMDQ Securities Exchange, monitoring trading activities at the Nigerian Autonomous Foreign Exchange Market (NAFEM), reveal that the CBN has only offloaded $581 million in the official market.

This accounts for a mere 3.2% of the total market turnover of $17.9 billion during the same period. Additionally, the CBN conducted dollar purchases from banks twice within this timeframe, totaling $80 million.

Considering the CBN’s $80 million sales to Bureau de Change operators this year, alongside the $581 million sold in the official market, total CBN interventions amount to $661 million.

However, Nigeria’s external reserves depletion of $2.16 billion in the past month far surpasses the combined interventions by the CBN in the market.

Furthermore, NAFEM data indicates that the reserve decline did not translate into FX sales. Out of the $6.11 billion in total outflows recorded during this period, $3.07 billion was allocated to servicing external debt.

Insights from CBN Governor Cardoso

Speaking at the sidelines of the recently concluded Spring meeting of the International Monetary Fund/World Bank in Washington DC, CBN Governor Olayemi Cardoso attributed the depleting external reserves to factors such as debt repayments, other obligations, and routine business transactions.

He emphasized the importance of maintaining market liquidity, noting fluctuating outflows ranging from $600 million to $1 billion. According to Cardoso, these shifts are typical for any country, with payments made to uphold credibility and financial stability.