Nigeria’s Foreign Reserves Fall for 19-Week Straight
Nigeria’s gross foreign reserves recorded 19 successive weeks of decline despite higher crude oil prices in the international market as a result of an inability to meet production volume awarded by the Organisation of Petroleum Exporting Countries (OPEC) and allies (OPEC+).
The weakness in the gross external position was also driven by oil swap arrangements on behalf of the Federal Government. Nigeria targets its policy to ensure exchange rate convergence but an imbalance between the demand and supply of foreign currency
At the global market, crude oil prices crossed $100 per barrel due to the expected demand surge in China and the United States, being the top crude oil consumers.
Data from the Central Bank of Nigeria (CBN) shows that the nation’s gross external reserves has been declining over the past months as oil production volume supplied to the international market stayed behind about 1.8 million barrels per day by the oil cartel.
In a market report, Cordros Capital Limited noted that Nigeria’s FX reserves declined for the nineteenth consecutive week, decreasing by USD34.25 million week on week to USD33.24 billion.
The current level is the lowest level since July 2021, according to analysts at the firm. For the country, generating or attracting foreign currency into the economy has become a herculean task.
“There are no incentives for foreign investors to significantly increase their investing position in Nigeria”, research analysts at LSintelligence said in a mail.
In the fixed income, the recent devaluation of the naira has not translated to foreign investors’ participation as the government continues to offer repressive rates on borrowing instruments.
Interest yield on naira assets has been negative over the years despite the higher inflation rate and rising cost of borrowing from local deposit money banks in the country.
Having realised the need to attract foreign investors’ monies, the apex bank resumed open market operation bills sales to foreign interest. However, this has not sufficiently improved the foreign currency shortage in the economy.
“The narratives in the FX market have remained the same in recent weeks, as FX reform momentum has slowed down. Hence, barring any significant positive developments, we expect the lingering low crude oil production and a sustained dip in foreign investors’ net flows to weigh on FX supply in the short term”, Cordros Capital said in a market note.
Analysts said they are expecting FX liquidity constraints to linger in the near term, ensuring the local currency pressures remain intact.
On Friday, the naira depreciated by 1.0% to N755.27 per United States dollar at the investors’ and exporters’ fx window. It was noted that total turnover at the window decreased by 46.4% from the beginning of the week to USD344.67 million on Thursday.
Market data showed that FX trades were consummated within the N590.00 – N851 per US Dollar. Crude oil prices edged higher on Friday following robust economic data in China, and the United States, the world’s biggest oil consumers. #Nigeria’s Foreign Reserves Fall for 19-Week Straight CBN Devalues Naira 12.95% despite Rising Foreign Reserves
