Nigeria’s foreign exchange reserves dropped to $33.23 billion at the end of the third quarter (Q3) of 2023, according to data obtained from the Central Bank of Nigeria (CBN).
The international reserves declined by $5.01 billion on a year-on-year basis relative to the $38.25 billion reported at the end of September 2022.
On a quarter-on-quarter basis, the foreign reserves depreciated by $881.84 million, having closed the second quarter (Q2) at $34.11 billion.
Since President Bola Tinubu’s administration came on board on May 29, the foreign currency reserves have fallen by $1.91 billion – Muhammadu Buhari, the former president bequeathed over $35.14 billion to the new government.
The $33.23 billion external reserves reported in Q3 2023 stood as the lowest in two years – since hitting $33.22 billion on July 22, 2021.
With Nigeria’s international reserves depleting, the country’s ability to fund imports weakens, leading to forex demand exceeding supply at the official and parallel markets.
Demand surpassing supply contributes to the depreciation of the naira and raises the exchange rate.
As a result, the price of the dollar increased by N240 in the parallel market, rising from N764.3, reported at the end of June, to around N1005, at the close of the third quarter of 2023.
Although, while the naira depreciated by 31.5 percent in the open market, it inched higher by 1.8 percent in the investors’ and exporters’ (I&E) window of the official market – which is influenced by the CBN.
The official naira-to-dollar exchange rate closed Q3 2023 at N755.27, contrasting with the quarter’s opening rate of N769.25.
In a statement by Fitch Ratings on Wednesday, the credit rating agency said: “There has been a renewed divergence between the parallel market and official exchange rates since August due to limited supply of FC, reversing some of the narrowing at June’s devaluation”.
“This highlights the challenges in sustaining exchange-rate liberalisation and raises the possibility of a further devaluation.”
Meanwhile, the decline in the foreign exchange reserves also makes it difficult for the country to defend or maintain its currency during an upward trend of the dollar.
In addition, the slump in forex reserves often forced governments to seek external loans, which explains why the Nigerian National Petroleum Company (NNPC) Limited secured a $3 billion loan from the African Export-Import Bank (Afreximbank).
Last week, Abdullahi Sule, the governor of Nasarawa state, said the $3 billion loan NNPC Limited applied for would be used to stabilise the naira.
