Nigeria’s external reserves experience $343m decline amidst economic challenges
By Esther Agbo
Nigeria’s foreign exchange reserves have experienced a notable decrease, shedding $342.97 million in just nine days, according to the latest data released by the Central Bank of Nigeria (CBN) recently.
The reserves now stand at $36.53 billion, reflecting ongoing pressures in the country’s financial landscape.
This drop comes on the heels of a significant sale of $876.26 million to satisfy the demands of importers and other foreign exchange users through the Retail Dutch Auction System (RDAS).
The reduction in reserves also coincides with the Nigerian government’s preparations to issue a $500 million domestic dollar bond, a historic move that is expected to bolster the reserves and stabilize the nation’s foreign exchange situation.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, recently emphasised the strategic importance of this dollar bond.
He also highlighted that the funds raised would be directed toward sectors poised for economic growth, stating, “This historic issuance will provide essential foreign exchange liquidity and boost reserves, which will help stabilise the exchange rate, manage inflation, and eventually lower interest rates. It will also lay the foundation for increased investment by both domestic and foreign direct investors.”
The dollar bond issued on Monday, marks Nigeria’s first-ever domestic bond denominated in U.S. dollars. It offers investors a bullet repayment at maturity, with the principal fully repayable at the end of the five-year term.
The government is aiming to attract both local and foreign investors, with a minimum subscription amount set at $10,000, with additional investments in multiples of $1,000 thereafter.
As Nigeria prepares for this landmark bond issuance, the declining reserves underscore the challenges facing the country’s economic managers.
The external reserves, which had seen a four-month growth of about $4 billion, have now begun to decline, reflecting the ongoing struggle to balance import demands, debt obligations, and liquidity management for the naira.
The decline in reserves, which began on August 7, 2024, with a recorded $36.87 billion, has been gradual but consistent. By August 15, the reserves had fallen to $36.53 billion, a cumulative decrease of 0.93 percent over the nine-day period.
This downward trend highlights the fragility of Nigeria’s reserve levels amidst mounting economic pressures.
In a recent Monetary Policy meeting, the CBN governor had announced that “As of July 18, 2024, external reserves stood at US$37.05bn, compared with US$34.70bn as of June 2024.
This represents 11 months of import cover for goods and services.” However, checks revealed that the actual figure was $35.93 billion, raising concerns about the accuracy of the data presented to the public.
As Nigeria navigates these economic challenges, the success of the upcoming dollar bond issuance will be closely watched as a potential lifeline for the nation’s external reserves and overall economic stability.
