Nigeria’s gross external reserves closed the month of December with a net balance of $37.11 billion. This is the lowest balance since September 2021 when reserves fell to $36.7 billion.
A quick check on the external reserves data from the apex bank, reveal the balance as of December 2nd, 2022 is just $37.07 billion and could fall into the $36 billion range in the next few days.
The external reserve has now fallen by about $1.9 billion in 3 months since September 2022.
So why the drop: Nigeria’s external reserves are largely funded from export proceeds from the sale of oil and gas to other countries.
- However, rising cases of crude oil theft have dented a blow on Nigeria’s export potential and thereafter the country’s external reserves.
- Nigeria’s external reserves are also funded from foreign currency loans such as multilateral loans from the likes of the World Bank or IMF or from the sale of Eurobonds.
- However, Nigeria has not tapped the Eurobond market in over a year meaning the central bank has had to rely mainly on crude oil sales.
- Nairametrics opines the drop in external reserves is likely due to the central bank’s defense of the naira in recent weeks.
What this means: A drop in external reserves poses a challenge to the ability of the central bank to maintain some of the gains recorded against the dollar on the black market.
- The lower the external reserves the higher the likelihood of the central bank considering a devaluation of the naira to stem the outflows.
- The central bank is unlikely to devalue before the elections as it continues to pursue other means of stifling demand. A recent measure was the introduction of new naira notes.
Silver lining: Nigeria’s daily crude oil production output rose above 1.59 million barrels per day according to the NNPC.
- This could mean increased revenue for the country and might translate to higher external reserves.
- Nigeria relies heavily on crude oil driven dollar proceeds for its forex liquidity management.
Latest actions: The central bank of Nigeria recently announced the introduction of new naira notes and a fixed date of December 15, 2022, to launch the new notes.
- It also recently announced it was reducing withdrawal limits over the counter cash to just N100,000 and N500,000 for individuals and corporates respectively.
- These initiatives among others are aimed at shoring up the country’s forex reserves as it battles currency depreciation and galloping inflation.
