• Naira weakens against the dollar across trading windows
Nigeria’s external reserves fell by $100 million in three days, from June 26 to June 28, as the figures continued to witness historic depletion.
According to data sourced from the Central Bank of Nigeria (CBN), the gross reserves have fallen to approximately $33.4 billion on June 28 against the $33.5 billion balance as of June 25, 2021.
The liquid form also fell from an excess of $33.3 billion to $33.2 billion within the three days, leading the country with a shortfall of over $100 billion.
The external reserve fell to a fourteen-month as of Monday. The figures have been on a reducing balance since last May 28. They appreciated briefly between May 26 and 28 after which they pulled back.
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Month-on-month, the gross and liquid reserves have lost an average of $0.8 billion. While the gross figure, which comprises invested and liquid proportions, depreciated by $0.85 billion, the liquid form lost $0.77 billion.
The Guardian had reported that Nigeria faced a tough challenge financing its huge import as the foreign reserve holdings continue to tumble.
The falling reserves, experts warned, could leave the country’s battled economic outlook worse off as the confidence of foreign investors is partly influenced by the size of the reserve.
David Adonri, an investment expert and economist, warned that Nigeria, like every other import-dependent country, needed a supportive foreign reserve to meet its needs.
“The value of the naira and foreign investors’ confidence in the economy is tied to the level of foreign reserve available. As it depletes, foreign investors’ confidence in the economy is being eroded.
“The main source of forex inflow is earnings from crude oil export held by CBN in foreign reserves supported by diaspora remittances and export proceeds. As the major provider of forex in the economy, CBN can determine the value of the naira and influence imports. With the depletion of the foreign reserve, that power is diminished considerably,” Adonri said.
The declining reserve at a time when oil prices are rising, he said, raises a question on the tidiness of the national economy management.
But a former Deputy Director of the Central Bank, Stan Ukeje, explained: “The rise in price in the spot market for oil does not affect Nigeria’s oil revenue because the country sells on contract. A rise in price in the futures market will materialise only in the future after delivery. Also, not all oil cargoes have off-takers. Only international oil companies (IOCs) have steady market access because they are linked with oil refineries, petrochemical plants and strategic storage facilities. Politically connected firms which are awarded oil lifting contracts by the Nigerian National Petroleum Corporation (NNPC) have neither vessels nor market access.”
Ukeje, a financial and investment consultant, also noted that “some of Nigeria’s oil outputs are pledged to export-import (EXIM) banks and other state lenders in repayment of infrastructure loans” while the portion so pledged does not bring in foreign exchange inflow “even as the foreign contractors from the lending countries do not bring money into Nigeria”.
Nigeria’s current reserve is among the poorest in the comity of oil-producing and leading African economies, including South Africa, Egypt and even Morocco.
The falling reserve is complicated by a historic foreign exchange crisis that has worsened in recent months. The naira has become increasingly more volatile since the CBN adopted the Nigerian Autonomous Foreign Exchange (NAFE) window for official transactions.
Findings have shown that some foreign online platforms are trading naira at N508/$ even as the local currency faces renewed pressure at the parallel market where it has sold at N502/$ since the beginning of the week.
At NAFEX, the dollar opened at N411.01/$ yesterday and rose to N42.9/$ before retracement that saw it closing at N411.28/$. The pseudo-market-led window has been battling with limited supply, challenge experts suggested would need to be addressed through an aggressive reform to make it a clearing market.
