Nigeria’s foreign exchange reserves have dropped by $1.82 billion over the past four months.

The long-running downtrend has stoked fears that the economy may in be for tougher time in the months ahead.

Official data and reports reviewed yesterday by The Nation Economic Intelligence indicated that the forex reserves had suffered consecutive declines since the beginning of this year.

The forex reserves dropped by $47.83 million last week to close the four-month period at $35.36 billion as against $37.08 billion recorded at the close of 2022. The April 2023 closing position represented the lowest point in recent months.

Analysts were unenthusiastic about the outlook for the nation’s forex reserves, with most experts expecting the reserves to continue deteriorating, a scenario that could worsen the country’s currency risks and delay recovery.

A member of Presidential Economic Advisory Council (PEAC), Mr. Bismarck Rewane, described the outlook for the nation’s forex reserves as negative.

“The external reserve is expected to continue its downward trend in the coming weeks as major sources of forex inflows deteriorate.

“This would be compounded by an adverse ruling in the ongoing P & ID trial. The $11bn arbitral award accounts for about 30 per cent of gross external reserves,” Rewane stated.

Rewane, Managing Director of Financial Derivatives Company (FDC), said the implication of the declining reserves was likely worsening of the country’s external imbalance and limitation of the Central Bank of Nigeria (CBN)’s supply of foreign exchange to support the naira at the forex market.

He noted that CBN’s inability to meet up the pressure of its managed exchange rate would lead to further depreciation of the naira.

The naira is currently trading at N740.00/$ at the parallel market – N277 gap ahead of N463.00 per dollar at the official Investors and Exporters (I & E) Window of the Central Bank of Nigeria (CBN).

Other analysts agreed that Nigeria’s shaky forex reserves position and currency crisis were directly due to the CBN’s currency management stance.

The apex bank’s fixed-rate, controlled exchange policy has seen the emergence of parallel markets with some N277 basis points between the official rate and the market-driven, unofficial parallel market.

They have called for major forex and macroeconomic reforms to stem decline and encourage direct and indirect forex inflows into the country.

Analysts at Cordros Capital reiterated their position that the forex crisis “will remain over the short-to-medium term” as there is no positive signal that denotes an improvement in forex supply relative to the pre-COVID-19 levels.

They said: “Moreover, considering the tepid accretion to the reserves given low crude oil production and elevated premium motor spirit (PMS) under-recovery costs, foreign portfolio investors (FPIs) who have historically supported supply levels in the Investors & Exporters Window will be needed to sustain forex liquidity levels in the medium to long-term.”

Analysts at Cordros Capital had attributed the persistent slowdown in capital importation to foreign investors’ lacklustre interest in the country “given an unclear foreign exchange framework, an uninspiring macro narrative, elevated global interest rates, and heightened global uncertainties”.

“While we believe a new government will be a breather for the country in the short term as sentiments are likely to improve, we think foreign capital inflows will remain low compared to pre-COVID levels over the medium term in the absence of significant reforms in the forex, fiscal and monetary policy frameworks,” the Cordros Capital analysts stated.

Their colleagues at Afrinvest (West Africa) said the prospects for Nigeria’s oil earnings is less enthusiastic, noting that irrespective of the global oil dynamics, the market may run on a negative sentiment in the weeks ahead.

“Nonetheless, we expect the market to be driven by bearish sentiment in May,” Afrinvest stated in a review on the outlook for crude oil and Nigeria’s forex market.

They spoke of the likelihood of naira rates across different forex segments to trade within a tight band this month.

Afrinvest said the capital importation was “primarily due to the investors’ aversion to subsisting forex policies”.

“Specifically, the prominence of capital controls to manage the ongoing forex crisis complicates fund repatriation from Nigeria and, by the same token, discourages new investments by offshore players,” Afrinvest stated.

According to them, the existence of a multiplicity of forex windows muddles clarity around forex administration, subsidises the government sector at the expense of the large private economy, and contributes to the widening premium of parallel market rates to the official market. (The Nation)