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Forex Reserves Decline Will Continue Due To Naira Depreciation – Analysts - INDEPENDENT

MARCH 30, 2023

LAGOS  – Analysts have stated that the decline bring witnessed in Nigeria ‘s foreign reserves will continue for a little while before improvement will be seen. 

According to data from the Central Bank of Nigeria (CBN) on Monday, Nigeria’s forex reserves declined by $93 million to $35.77 billion by March 23, 2023, indicating 2.53 per cent depletion month-on-month. 

The CBN indicated that foreign exchange reserves depleted from $36.70 billion on February 23, 2023. 

The country’s forex reserves also declined 3.46 perbcent from the $37.06 billion it opened the year on January 3, 2023, the CBN data showed. 

The dollar savings in Africa’s largest economy have been on the decline since last year due to the inability of Nigeria to generate sufficient dollars to meet the country’s needs. 

Analysts have attributed the continued depletion of the nation’s foreign currency reserves to the persistent depreciation of the naira value at all segments of the dollar markets. 

For instance, the naira traded between N750 and N770 at the parallel market last week while it was quoted at the official Investors and Exporters’ forex window (I&E) at N461.3 last week compared with its previous close of N461.8 per dollar. 

“This week, we expect to witness continued pressure on the Naira across all market segments, given that FX pressures will continue as dollar earnings remain weak and demand outweighs supply,” analysts at United Capital project in a note to clients. 

The investment banking group, Cordros Capital, said Nigeria’s inability to boost its forex reserves and meet the demand for forex will linger over the short-to-medium term as there is no “positive signal that denotes an improvement in forex supply relative to the pre-pandemic levels.” 

Cordros Capital noted that low crude oil production and elevated premium motor spirit (PMS) under-recovery costs have continued to undermine the government’s internal forex generation, while foreign portfolio investors (FPIs), who have historically supported supply levels in the official market, have remained on the sidelines due to the forex management policy. 

The CBN had last week expressed optimism that its many initiatives, such as the RT-200 FX program, Naira-4-Dollar, and other policies targeted at attracting remittances, would continue to improve accretion to external reserves and improve liquidity. 

“In our view, the rebate on both policies (the RT-200 FX program and the Naira-4-dollar program) is relatively unattractive to lure exporters and diasporans to the official window given the large spread between the official and parallel market rates. 

“Hence, the focus of the CBN should be more tilted toward addressing capital control policies and the multiplicity of the forex window, which has continued to hinder the inflow of forex into the economy—foreign portfolio investment (FPI) and foreign direct investment (FDI) are currently at the lowest level in more than half a decade,” Afrinvest said. 


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