Data on Nigerias external reserves position released by the Central Bank of Nigeria (CBN), has revealed a notable decline of 10.86 per cent year-on-year (YoY) from $37billion on the first business day of 2023 to $33 billion in the same period in 2024.

The figures captured over the preceding months demonstrate a notable trend of variation. On the 3rd of January 2024, the reserves stood at $33,042,246,777, marking a slight decline from the $33,016,694,505 recorded on the 2nd of January 2024.

This fluctuation echoes the movements witnessed towards the end of 2023 when the external reserves fluctuated within the range of $32 billion to $33 billion. The year concluded with reserves reported at $32,912,429,900 on the 29th of December 2023, showcasing an incremental rise from figures observed earlier in the month.

Nigerias external reserves are influenced by diverse elements, including global oil prices, trade balances, foreign exchange inflows, and government policies, which collectively impact the nations financial stability.

The figures throughout December 2023 showcased this fluctuation. On the 29th of December, the external reserves were reported at $32,912,429,900, retaining the same value as the previous day. However, by the 28th of December, a marginal increase was noted, with reserves standing at $32,892,386,111.

The 27th of December saw a similar upward trend, recording reserves at $32,870,500,673, while figures from the 22nd of December reported reserves at $32,800,465,802, indicating a gradual ascent in the countrys external reserves leading up to the year-end.

Economic analysts and financial experts remain observant of these movements, recognising the pivotal role of external reserves in bolstering Nigerias economy against unforeseen economic shocks. The reserves act as a buffer, aiding in maintaining stable exchange rates, managing inflationary pressures, and ensuring confidence in the nations monetary policy.

However, analysts have noted that these early gains would get a further boost on the inflow of the AFEXIM loan slated to come into the coffers.

Analysts at Meristem in their 2024 outlook stated: As of 30th December 2023, the exchange rate on the official window depreciated by 96.56 per cent YoY to N907.11/$. The depreciation on the parallel market was 63.29 per cent YoY to N1,210.00/$, maintaining a premium of 33.39 per cent over the official rate.

On a positive note, the external reserves remained above the benchmark of 3.0 months of import cover recommended by the International Monetary Fun (IMF) standard and could finance up to 6.30 months of import as of September 2023. Also, we expect the receipt of the first tranche of the long-awaited loan facility from the AFREXIM bank $2.25bn out of $3.30bn to increase the countrys foreign reserves levels.

In our macroeconomic note, we highlighted that the AFREXIM loan is a welcome short-term fix; however, Nigerias inherent FX market issues require more permanent solutions. Clearing the existing FX backlog and meeting new legitimate FX demands would require additional sustainable inflows of FX into the reserve balance. (THISDAY)