Nigeria’s foreign reserves experienced a substantial decline of $4.07 billion in the first 11 months of 2023, settling at $33 billion as of November 30, 2023. The drop, attributed to Central Bank of Nigeria (CBN) interventions in the foreign exchange market, raises concerns about the country’s economic stability.
Key Points:
- Foreign Reserves Decline:
- Nigeria’s foreign reserves recorded an almost 11% decrease from $37.069 billion at the beginning of the year to $33 billion by the end of November 2023.
- The November decline alone accounted for a 1.17% drop or $392.08 million.
- CBN Intervention and Debt Servicing:
- CBN Governor, Mr. Olayemi Cardoso, acknowledged responding to the backlog of foreign exchange forward obligations, making payments to 31 banks.
- Analysts attribute the depletion to CBN clearing backlog in sectors such as aviation.
- Continuous intervention, external debt servicing, and lower foreign exchange inflow from oil exports contribute to the dwindling reserves.
- Naira’s Pressure and Exchange Rate:
- The continuous decline in foreign reserves puts pressure on the naira, with the official market rate closing November 2023 at N942.117 against the dollar, compared to the opening rate of N448.55 for the year.
- Analysts’ Perspectives:
- Vice President of Highcap Securities Limited, Mr. David Adnori, emphasized external debt servicing, lower oil export revenues, and the challenge of meeting OPEC oil production quotas as factors affecting reserves.
- Analysts at Cordros Research highlighted the CBN’s low international FX liquidity position, indicating potential challenges in sustaining interventions to support the naira.
- They emphasized the need for economic diversification to stabilize the exchange rate and attract foreign investors.
- IMF Funding Consideration:
- Cordros Research suggests that Nigeria’s reluctance to approach the International Monetary Fund (IMF) for funding assistance could impact foreign investors’ confidence.
- The analysts propose that the current economic reforms, including FX and petrol subsidy reforms, create an opportune time for Nigeria to seek IMF support.
- Medium-Term Outlook:
- The report emphasizes the importance of diversifying Nigeria’s export base beyond crude oil to address recurring exchange rate challenges.
- Diversification is seen as essential for stabilizing the economy, attracting foreign investment, and reducing dependence on oil revenue.
Conclusion: Nigeria’s declining foreign reserves raise concerns about the country’s economic resilience, impacting the exchange rate and potential foreign investments. As the nation grapples with external debt servicing and varying economic challenges, the call for diversification and a reconsideration of IMF funding becomes critical for long-term stability. The trajectory of Nigeria’s foreign reserves will continue to shape its economic outlook in the coming months.
