Nigeria’s foreign exchange reserves have fallen by $1.6billion to $32.97billion since the Central Bank of Nigeria (CBN) announced the unification of the exchange rate to unify the country’s foreign exchange rates.
As of June 15, 2023, when the naira was allowed to float, the country’s gross FX reserves stood at $34.62billion. However, the foreign exchange reserves fell to $32.97billion as of December 1, 2023, shedding $1.65bn, according to data from the CBN.
The decline in the FX reserves has been blamed for the fall in the naira rate and has been attributed to the limited capacity of the country to earn foreign exchange from both non-oil and oil exports and increasing FX demand which has seen the naira weaken by more than 40 per cent since June.
In July, the apex bank noted that accrual to external reserves remained weak while foreign exchange demand pressures persisted. During the bank’s Monetary Policy Committee Meeting, one of the members, Obadan Mike, highlighted that amidst unabating demand, the fundamental problem of the foreign exchange market remains inadequate foreign exchange supply reflecting low productivity of the economy, inadequate export earnings, and limited foreign capital inflows.
He expressed worries that the country’s external reserves was in an uncomfortable position and was a key concern for the domestic economy.
Recently, the Economist Intelligence Unit, in its Africa Outlook disclosed that Nigeria doesn’t have enough in its FX reserves to back up its exchange rate unification policy.
It said: “In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure, while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved. High inflation and a continued spread with the parallel market will leave the exchange rate regime unstable and result in periodic devaluations.”