Experts say CBN’s naira defence unsustainable as reserves drop to $3.3 43bn

FINDINGS have shown that the Central Bank of Nigeria’s (CBN) continuous defence of the naira has exposed Nigeria’s foreign exchange (FX) reserve to higher risks, as the reserve has dropped to $33.34 billion from $34. 45 billion within 18 days.

Analysts attributed the sharp decline – by $1.02 billion – largely to the apex bank’s aggressive defence of the naira against the dollar.

Economy watchers also warned that the CBN’s naira defence would keep exposing the country’s foreign reserve to dipping if the federal and sub-national governments failed to stop crude oil theft and capital importation.

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“I am saying correctly that unless crude oil exports rise, the naira can’t sustain its rise long-term without the CBN selling its reserve,” an economist, Kalu Aja, said in reaction to the development.

He added: “The real fundamentals are unchanged. The oil revenue, which makes up 89 per cent of forex earnings, still has huge impact on the foreign reserve. What the CBN has done is buy time for the executive to pump more oil; if that oil output changes, then the fundamentals have changed, and the dollar pressure will ease to a new level,” Kalu added.

According to the latest data from the CBN, the FX reserves stood at $33.43 billion as of April 4, down from $34.45 billion on March 18.

Nigeria’s foreign exchange reserve plummeted to $33.42 billion on February 20, the lowest level since then.

The drop in the reserve marks a decisive end to a period of steady increase, during which the reserve witnessed a 43-day increase, growing additional $1.28 billion between February 5 and March 18, 2024.

The CBN attributed the rise to increased remittance payments from Nigerians abroad and heightened interest from foreign investors in local assets, including government debt securities.

The apex bank also noted that the increase was due to reforms in the foreign exchange market and an increase in oil production amongst others.

The current downward trend reflects a significant drawdown in the reserves.

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Economists insist the drawdown has consequences on Nigeria’s currency unless there are improved exports and other measures to strengthen fiscal policies such as domestic petroleum refining, stopping oil theft, improving capital importation and diaspora remittances.



    “The fiscal policy must support the monetary policy for wholistic results. The CBN is using some monetary policy tools but it’s not enough. Maybe from the proposed diaspora bonds, we would see the naira strengthening further,” an economist and former Director-General of Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf, told The ICIR.

    Notably, the apex bank recently resumed FX sales to the BDC operators and pegged the latest intervention tranche at N1,251/$1 (plus 1.5 per cent margin) to the licensed Bureaux De Change (BDC).

    This is the first time in the last 15 years that the unofficial market rates have been lower than the official BDCs’ applicable buying rate.

    Analysts insist the sale of dollars to BDCs at a pegged rate might not be sustainable if the government didn’t have enough dollars to battle speculators.

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    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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