More worries for Nigeria and her citizens reeling under hardship ocassioned by subdy removal and unification of exchange rates as they equally have to contend with falling external reserves to $33.9 billion on Wednesday, July 19th, 2023, its lowest level in two years.
This is according to data from the central bank (CBN) website, which it updates regularly.
The last time the external reserve touched this level was in July/August 2021.
Nigeria has been contending with various social and economic challenges resulting in dwindling of the country’s external reserves position, ocassioned by rising demand for foreign exchange.
The continued rise in inflation rate has virtually removed purchasing power from consumers as high networth and privileged Nigerians intenfify investments in foreign currencies to hedge against volatile foreign exchange market even as CBN continues search for true exchange rate regime.
This is despite the introduction of the revised I&E Window on the 14th of July 2023.
The external reserve was $35 billion when Tinubu was sworn in as president and $34.6 billion on July 13th, the eve of the changes to the forex policy. However, a lack of forex supply amidst foreign investment apathy appears to have exacerbated the decline in external reserves. The country has been struggling with lower foreign exchange earnings over a reduction in crude oil revenues, ocassioned by lower oil revenues as a result of crude oil theft.
Apart from calls for a unified exchange rate which have since been acceded to, foreign investors also have issues with the country’s growing debt and its fiscal crisis. This is even as the exchange rate between the naira and the US dollar closed at N768.16 per dollar at the official Investor and Exporters window on Thursday, 20th July 2023, according to Nairametrics. ALSO READ:Fidelity Bank Moves To Raise Capital, Announces plans For Public offer, Rights Issue The official exchange rate opened at N787.13/$1 but reached a high of N844/$1 during intraday trading and a low of N700 per dollar. The naira also weakened significantly against the US dollar at the parallel market on Thursday, closing at N860/$1.
Why The Worries:
External reserves play a crucial role in maintaining the stability of a country’s currency. They provide a buffer to support the value of the domestic currency and ensure its convertibility. With lower reserves, the naira may come under increased pressure, leading to potential depreciation. A weaker currency can have adverse effects on various sectors, including imports, inflation, and investor confidence. Nigeria heavily relies on imports for various goods and services, including critical sectors like energy, machinery, and consumer goods. Adequate external reserves are essential to ensure a steady supply of foreign exchange (forex) to meet import demands. However, the declining reserves indicate a potential scarcity of forex, which can lead to challenges in accessing essential imports and hinder economic activities.