March 4, 2024/CSL Research

Based on figures obtained from the Central Bank of Nigeria (CBN) website on movement of external reserves, the country’s external reserves have declined by US$0.40bn since the FX unification in June 2023. The figures show that external reserves fell from US$34.12bn as of 30 June 2023 to US$33.72bn as of 29 February 2023, a 1.2% drop. We note that the figures obtained from the CBN website are slightly different from the numbers communicated by the CBN governor at the conclusion of the last MPC meeting. According to the CBN governor, gross external reserves was up to US$34.51bn on 20 February 2024, compared with US$32.23bn at end-January 2024 while the data on movement of external reserves from CBN shows a balance of US33.42bn as of 20 February 2024, and a January end balance of US$33.35bn. Though other sources like foreign remittances, foreign currency loans, and yields from foreign assets contribute to the nation’s external reserves, the major source of inflow is crude oil sales receipt. 

Oil prices trended up last year, influenced by the impact of the Russia-Ukraine crisis on the global energy market. However, Nigeria did not fully capitalize on this due to declining production figures caused by crude oil theft and deteriorating oil infrastructure. Moreover, delayed subsidy elimination led to increased subsidy payments as refined petroleum landing costs surged alongside rising crude prices. To address FX liquidity issues, the Tinubu administration introduced have introduced several polices including FX rate unification across various windows, aiming to narrow the gap between the official and black-market rates and create a more transparent FX market. Despite these measures however, FX pressures persist leading to the continuous depreciation of the Naira. We believe urgent structural reforms are needed on the fiscal side to increase the supply of FX.