Though the Naira has gained strength against major currencies in a couple of weeks, the Central Bank of Nigeria (CBN) has spent $1.2 billion to defend the currency.
According to data obtained from the CBN website yesterday, the country’s foreign reserves dropped from $34.45 billion to $33.43 billion, representing about $1.2 billion or N1.4 trillion.
The CBN’s insistence that the upsurge in the value of the Naira is due to the influx in Foreign Portfolio Investments (FPIs) through its money instruments and remittances of Nigerians living abroad notwithstanding, Nigeria is now paying more to service its debts owing to the devaluation of the currency.
The data indicate that there has been a steady slide in recent days, as the reserve peaked on March 18 at $34.39 trillion. On March 19, it fell slightly to $33.57 billion and further moved down to $33.43 billion on April 4, which showed a decline of $1.02 billion.
The depletion is a threat to the Naira, as it may put pressure on the currency, while CBN may struggle to defend the exchange rate, which could lead to depreciation and increase the cost of imports, fuel and erode purchasing power.
Depleting the FX reserves is also likely going to negatively impact the ability to finance imports. As a net importer of goods, Nigeria relies on FX reserves to pay for essential imports such as food, fuel, machinery and raw materials.
This development may erode the confidence that is slowly growing among the business community, as the apex bank seeks to stabilise the market. Experts believe that addressing the depletion of reserves requires a comprehensive approach that focuses on building reserves through export diversification, promotion of foreign investment inflows, enhancement of export competitiveness and implementation of effective macroeconomic policies to support reserves’ accumulation and management.
Experts observed that the depletion was due to external debt payment, credit payment or financing impending importations. Nigeria’s external debt repayment for Q4 2023 was over $900 million.
Its debt repayment gulped 78 per cent of total revenue, which the government is trying to bring down to 50 per cent by generating more revenue.
