Nigeria’s External Reserves Decrease To $35.78bn


Nigeria’s external reserves dropped to $35.78billion as of March 23, 2023, reaching its lowest outcome since September 2021 and 2023 low attributed to the Central Bank of Nigeria (CBN) intervention in the foreign exchange market and drop in global oil price.

In March, the external reserves dropped to $35billion despite opening in the month under review at $36.68billion.

In the 18 days of March 2023, external reserves that dropped by $901.1million or 2.46per cent to $35.78billion as of March 23, 2023 from $36.68billion it opened in the month under review.

So far in 2023, the external reserves depreciated by $1.31billion or 3.52per cent from $37.08billion it opened in 2023 to $35.78billion.

External reserves in 2022 fell by $3.43billion from $40.52billion to  $37.09billion over domestic and foreign related factors.

Analysts at Investment One research in a report titled, “2022 review and 2023 macro-economic and financial markets outlook” stated that in 2022, the higher oil price but low reserves conundrum continued to torment the local currency.

“As such, the pressure on the exchange rate intensified buoyed by the low accretion to external reserves. Despite Brent trading at multi-year high, the impact on foreign reserves was limited given the country’s low production and elevated subsidy payments.”

According to them, in 2023, a combination of limited inflows from crude oil sales, fragile capital flows and foreign remittances, would continue to hurt the Naira.

They expressed that “While the rising oil production volume is slightly positive for oil earnings and by extension, the reserves, we still think that crude oil production of less than 2.00million barrels is unlikely to significantly move the needle on exchange rate. In addition, elevated subsidy payments should curtail oil inflows, albeit the likely suspension of this cost at the 2nd half of the year should be positive for the external reserves.

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“With yields expected to remain elevated in the global economy, the return of foreign portfolio investors seems remote until risk adjusted returns becomes attractive.

“More so, the weak macro backdrop and lack of flexibility in exchange rate management remain a headwind for capital flows. With the likelihood of Eurobond borrowing slim, the possibility of an influx of the greenback to support the Naira looks unrealistic. However, the continual success of the RT200 FX scheme is a tailwind for the currency at the official market.

“While the nation’s external reserves may proffer support for the currency, we highlight that the CBN will continue to allow the Naira to weaken to c. N480/$ – N490.00/$ at the IEFX window during the year to aid marginal improvement in balance of payment. As such, we opine that we might not see a devaluation in the Naira beyond that level.

“On the positive side, the commencement of operations at Dangote Refinery, slated for 2023, may bode positively for the economy given potential foreign exchange savings and inflows.”

A check revealed that daily crude oil price dropped to   $73.85 per barrel as of March 24, 2023 from $82.58 per barrel it opened in the under review, according to the CBN on its official website.

The dwindling crude oil over global uncertainty has impacted on several sectors contributing to the economy growth.

Specifically, the International Air Transport Association (IATA) recently said foreign airlines’ revenue blocked from repatriation by the Nigerian government has increased to $743 million from $662million in January 2023.

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The air transport group and the global airline community had written the federal government, seeking a special invention for the resolution of airlines’ blocked funds in the country.

Reacting to dwindling external reserves, the CBN governor, Mr. Godwin Emefiele expressed  optimism that, the continued progress made with the RT200 FX programme, Naira-4-dollar and other policies targeted at attracting diaspora remittances, would continue to help improve accretion to the external reserves and improve liquidity in the foreign exchange market.

Analysts at Cordros Research said “We believe foreign exchange liquidity issues will remain over the short-to-medium term as we do not see any positive signal that denotes an improvement in foreign exchange supply relative to the pre-pandemic levels.

“Moreover, considering the tepid accretion to the reserves given; low crude oil production and  elevated PMS under-recovery costs, FPIs who have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels in the medium to long-term.”

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