May 20, 2024/CSL Research

Based on figures obtained from the Central Bank of Nigeria (CBN) website on movement of external reserves as of 16 May 2024, there was a notable increase of US$0.54bn in the nation’s
external reserves reaching US$32.64bn, after a significant decline of US$2.28bn in a single month between 18 March and 19 April 2024, which initially was widely believed to have occurred due to the CBN’s incessant efforts to stabilise the Naira.

However, the CBN Governor Mr. Olayemi Cardoso, at the International Monetary Fund Spring Meeting held in Washington DC last month refuted the claim, asserting that the decline was due to the partial repayment of debts owed to creditors. He further expressed the apex bank’s desire to minimise its involvement in the FX market.

Though other sources like foreign remittances, foreign currency loans, and yields from foreign assets contribute to the external reserves, the major source of inflow is crude oil sales receipt. Oil prices have been high in recent years, influenced by the impact of the Russia-Ukraine crisis on the global energy market.

However, Nigeria has failed to fully benefit from this due to declining production figures caused by crude oil theft and deteriorating oil infrastructure. Additionally, delayed subsidy elimination resulted in increased subsidy payments as refined petroleum landing costs surged alongside rising crude prices.

To address FX liquidity issues, the Tinubu administration has 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.

In our view, without urgent structural reforms on the fiscal front to augment FX supply, the country’s reserves will likely be  pressured for the rest of the year despite the slight increase observed.

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