Nigeria’s foreign reserves plummeted further at $34.85 billion on December 14, as the Central Bank of Nigeria (CBN) continues its interventions across the various foreign exchange (FX) windows despite declining dollar inflows.
This is the lowest level since April when it touched $33.4 billion in the wake of the COVID-19 pandemic and falling oil prices.
Data from the CBN shows that in the last five weeks, foreign reserves fell by $805 million from $35.656 billion as of November 4, 2020.
In January this year, the nation’s reserves stood at $38.5 billion before declining to $36 billion in February and early March. It further declined to $35 billion late March, before sinking further at $33 billion in April.
It rose again following the disbursement of the $3.4 billion IMF emergency support to Nigeria to address COVI-19 pandemic, and has remained in the $36 billion region since July this year.
Nigeria’s external reserve is very crucial in defending the naira and covers the country’s huge import bills. An increasing external reserve suggests a higher inflow from crude oil earnings, foreign inflow from investors, and external loans.
The apex bank has so far devalued the naira three times this year, but many still believe that the naira is still overvalued, trading at N383 per dollar in the investors and exporters window — a 20 percent discount compared to N475 at which the greenback is sold at the parallel market.
However, the announcement of the final approval of $1.5 billion World Bank loans for Nigeria, upon disbursement, could ease the mounting pressure on the reserves.
According to financial analysts, this would not translate to immediate impact as it would be released in tranches.
Also, a lot of foreign currency transactions happen at year-end which has exacerbated the pressure on the nation’s reserve.