Nigeria’s external reserves shed $2.16 billion in the past month, falling to a seven-year low of $32.29 billion on April 15, 2024, from $34.45 billion on March 18, 2024, according to CBN data.

A recent Bloomberg report suggested that Nigeria is burning through its foreign exchange reserves at a rate not seen in four years, raising concerns that the central bank is depleting its dollar holdings to support the naira after pledging it would allow the currency to float more freely.

Liquid reserves declined 5.6% since March 18, when the naira started its rebound from record-low levels against the dollar to $31.7 billion as of April 12, according to Bloomberg’s calculations based on the latest available data from the CBN, that’s the biggest decline in a similar period since April 2020, according to data compiled by Bloomberg.

How naira has performed since January

At the beginning of the year, the naira went down to about N1,900 to a dollar. However, the naira has been gaining strength lately and has gone up to about N1,100 to a dollar.

The central bank said last month that it had cleared a backlog of overdue dollar purchase agreements estimated at $7 billion since the beginning of the year.

Nigeria still has a sizable cushion of foreign exchange reserves, buoyed by a rally in oil prices and inflows from multi-lateral loans. Gross reserves of around $32.6 billion cover about six months’ worth of imports, according to the International Monetary Fund.

What the FMDQ data revealed

Data from the FMDQ Securities Exchange, which tracks trading activity at the Nigerian Autonomous Foreign Exchange Market (NAFEM), showed that the central bank has only sold $581 million in the official market.

That leaves the CBN’s sales accounting for only 3.2 per cent of the total market turnover of $17.9 billion in the same period.

The data also showed that the CBN bought dollars from the banks on two occasions within the period. One was a $50 million transaction on March 28 and the other $30 million on March 27, bringing it to a total of $80 million.

When the apex bank’s $80 million sales to Bureau de Change operators this year (since lifting a three-year-old ban) is factored in alongside the $581 million sold at the official market, the total CBN interventions come to $661 million.

In comparison, Nigeria’s external reserves shed $2.16 billion in the past month. That figure is, however, more than double the combined interventions of the CBN in the market

The data from NAFEM shows the reserve drop did not flow into FX sales.

According to data from the CBN, out of the $6.11 billion in total outflows made during this period, $3.07 billion was spent on servicing external debt.

Cardoso explains depletion

Speaking on the sideline of the just concluded Spring meeting of the International Monetary Fund/World Bank in Washington DC,  CBN Governor Olayemi  Cardoso said the depleting external reserve is mostly due to factors such as debt repayments, other obligations and also due to the ordinary course of business.

He said: ‘What is important to us is that there is sufficient liquidity in the market.  $1 billion is out now, sometimes it is $600, $700 million as the case may be, and that will continue.

“What you see with respect to the shifts in our reserves, is a shift that you will find in any country’s reserves situation, where for example, debts are due and certain payments need to be made: they are made because that is also part of keeping your credibility intact.”