The Nigerian naira has continued to lose value against the US dollar, as the country’s foreign exchange reserves fell to $33.2 billion in September 2023, the lowest level since March 2022, according to data from the Central Bank of Nigeria (CBN).
The naira traded at N1,150 per dollar in the parallel market on Monday, October 23, 2023, a 10 percent depreciation from N1,050 at the end of August 2023. On Monday, the official exchange rate also weakened to N998.5 per dollar from N990.5 per dollar a month ago.
The decline in reserve reflects the persistent pressure on the foreign exchange market, as demand for dollars exceeds supply. The CBN has been intervening in the market to defend the naira and fund import bills, but its efforts have been hampered by low inflows of foreign exchange from oil exports, remittances, foreign direct investments, and portfolio investments.
According to the 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) obtained by BusinessDay, the CBN supplied $15.27 billion to the economy in 2022, 15.3 percent lower than the $18.03 billion supplied in 2021. The decline was partly attributed to the halt of forex sales to Bureau De Change (BDC) operators, which the CBN accused of engaging in speculative activities and illegal transactions.
The CBN has also implemented various policy measures to boost foreign exchange inflows into the country, such as easing restrictions on 43 items previously banned from accessing forex, improving market transparency, and allowing domestic entities to issue foreign exchange instruments. However, these measures have not yielded the desired results, as investors remain cautious and skeptical about the naira’s stability and the reserves’ sustainability.
The Nigerian Economic Summit Group (NESG), a private sector think tank, had projected that the reserves will decline further to $34.9 billion by the end of 2023 from $37.21 billion in January 2023. The NESG also predicted that the official exchange rate will depreciate to N500 per dollar by December 2023, reflecting the widening gap between demand and supply of forex.
The NESG urged the government to implement structural reforms to diversify the economy from oil dependency and enhance its competitiveness and productivity. It also called for a more flexible and market-driven exchange rate regime that would reflect the true value of the naira and attract more foreign exchange inflows into the country.
Despite the challenges facing the naira and the reserves, some analysts believe that Nigeria has the potential to overcome its forex crisis by exploring other sources of revenue and foreign exchange, such as non-oil exports, diaspora bonds, sovereign wealth funds, and green bonds. They also expressed optimism that Nigeria would benefit from the African Continental Free Trade Area (AfCFTA), which has the capacity to unlock a market of 1.3 billion people valued at $3 trillion.
Source: Tribune Online
