Nigeria’s external reserves have decreased by 0.68 per cent, falling to $36.620 billion as of August 12, 2024, from $36.872 billion recorded on August 7, 2024, according to data from the Central Bank of Nigeria (CBN).
This decline follows an increase to $37.88 billion as of July 15, 2024, up from $34.76 billion at the end of June 2024.
In July, the CBN had forecasted a slight reduction in Nigeria’s external reserves for 2024. This prediction was made in the inaugural edition of its ‘Macroeconomic Outlook: Price Discovery for Economic Stabilisation’ report.
The apex bank attributed the anticipated decline to debt service and other financial obligations.
The outlook said, “The external reserves, which stood at $33.09bn in 2023 could reduce slightly in 2024. This is on the assumption of continued payments of outstanding foreign exchange forward obligations, matured foreign exchange swaps, and debt service. The expected improvement in crude oil earnings, together with recent reforms in the foreign exchange market and energy sector, however, would cushion the drop in external reserves.”
On July 8, Nigeria’s foreign reserve crossed $35.05bn, the first time in about a year and has remained above that mark since then.
A member of the Monetary Policy Committee (MPC), Bala Moh’d Bello in his personal statement at the last meeting in July 2024, had emphasised how essential it was to maintain exchange rate stability to ensure stable prices, given the significant impact of exchange rate pass-through on import prices and inflation.
He said, “The central bank has made substantial efforts to stabilise the foreign exchange market, which has led to increased foreign portfolio investment inflow and a reduction in exchange rate volatility. In addition to current measures being taken by the Bank, medium and long-term strategies are being explored to ensure that the exchange rate settles at a market-determined equilibrium level.”
External reserves are assets held by the Central Bank of Nigeria (CBN) in foreign currencies, including banknotes like the US dollar, bonds, Treasury bills, foreign government securities, and commodities such as gold. These reserves serve several key functions: influencing monetary policy, supporting the country’s currency, meeting external obligations, managing exchange rates, and fostering confidence in the Nigerian economy. Additionally, they play a crucial role in facilitating international trade and ensuring economic stability.
Lydia Shehu Jafiya, a member of the Monetary Policy Committee (MPC), noted in her personal statement that foreign exchange inflows improved by 38.26 per cent month-on-month between April and May 2024. This increase was driven by higher receipts from both oil and non-oil sectors. She highlighted that, as of the end of June 2024, the gross external reserve position could cover 7.59 months of imports of goods and services and 10.88 months of imports of goods alone. The foreign exchange market also experienced relative stability and convergence of rates during this period.
“The foreign exchange market has witnessed relative stability in the recent past, as indicated by the narrowing spread in different segments of the market, driven by the efficiency of the market mechanism in foreign exchange allocation and price determination,” she added.
This is as Mustapha Akinkunmi, a member of the MPC also said the naira depreciated to ₦1,605.50 on July 19, 2024, from ₦1,525.00 on June 28, 2024. Gross external reserve stood at US$34.88bn as of June 2024, projected to be about US$32.93bn at the end of May 2024. This reserve he said could cover imports for about 11 months of goods and about 8 months of goods and services.
However, an update seen by Channels Television on Wednesday indicated a decline from $36.620bn as of August 12, 2024, from $36.872bn recorded on August 7, 2024.
The CBN Governor, Olayemi Cardoso, while speaking on possible solutions to the deep, said particular attention needs to be paid to developments in the foreign exchange markets, and that the outlook for the exchange rate in the short to medium term, given its major impact on inflation.
According to him, the recently observed relative stability of the exchange rate is owed to the increased confidence of the market in the actions of the Monetary Policy Committee (MPC) to deliver the objective of bringing inflation within target.
“This fragile equilibrium must, however, be carefully managed in order not to jeopardise the achievements so far in attracting more capital flows to help sustain the recent stability in the market,” he said.