The external reserve is expected to continue its downward trend in the coming weeks as major sources of forex inflows deteriorate.
Nigeria’s foreign exchange reserves have dropped by $1.82 billion over the past four months, official data and reports have shown.
It was indicated that the forex reserves had suffered consecutive declines since the beginning of this year, a development that has raised fears the economy may be heading for tougher times in the months ahead.
According to one of the reports, the forex reserves dropped by $47.83 million last week to close the four-month period at $35.36 billion as against $37.08 billion recorded at the close of 2022. The April 2023 closing position represented the lowest point in recent months.
Analysts were unenthusiastic about the outlook for the nation’s forex reserves, with most experts expecting the reserves to continue deteriorating, a scenario that could worsen the country’s currency risks and delay recovery.
A member of Presidential Economic Advisory Council (PEAC), Mr. Bismarck Rewane, who spoke to The Nation, described the outlook for the country’s forex reserves as negative.
“The external reserve is expected to continue its downward trend in the coming weeks as major sources of forex inflows deteriorate.
“This would be compounded by an adverse ruling in the ongoing P & ID trial. The $11bn arbitral award accounts for about 30 per cent of gross external reserves,” Rewane stated.
Rewane, Managing Director of Financial Derivatives Company (FDC), said the implication of the declining reserves was likely worsening of the country’s external imbalance and limitation of the Central Bank of Nigeria (CBN)’s supply of foreign exchange to support the naira at the forex market.
He noted that CBN’s inability to meet up the pressure of its managed exchange rate would lead to further depreciation of the naira.
The naira is currently trading at N740.00/$ at the parallel market – N277 gap ahead of N463.00 per dollar at the official Investors and Exporters (I & E) Window of the Central Bank of Nigeria (CBN).
Other analysts agreed that Nigeria’s shaky forex reserves position and currency crisis were directly due to the CBN’s currency management stance.
The apex bank’s fixed-rate, controlled exchange policy has seen the emergence of parallel markets with some N277 basis points between the official rate and the market-driven, unofficial parallel market.