Nigeria’s forex reserve over the weekend rose by $140 million, in the face of pressured naira on major exchange platforms.
Nigeria’s foreign exchange (forex) reserves have risen to $33.25 billion amid optimism that the country may surpass its crude oil earnings projections.
Over the weekend, data showed that forex reserves rose by $140 million to close at $33.25 billion, to maintain a positive stance.
The reserves closed 2023 at $32.91 billion and closed the penultimate week at $33.11 billion.
Have You Read: Forex Scandal: Dangote Gives Update On EFCC Invitation
With growing fears of supply shortages in the Middle East and disruptions in the United States, the price of Brent crude rose by 1.6% to close at $78.48/bbl at the weekend.
Meanwhile, the International Energy Agency (IEA) had revised its 2024 demand forecast upward to 1.24mbpd.
Volatile Currency Depreciation
Analysts said they anticipated that global crude oil price would stay over the government’s 2024 budget assumption of $77.96 per barrel.
Nigeria’s external reserves, which closed in 2022 at about $37.08 billion, peaked at $37.211 billion on January 16, 2023.
It then suffered a streak of long losses, as the Central Bank of Nigeria (CBN) struggled with extremely volatile currency depreciation.
While the reserve grows, the naira, however, remains under pressure at the forex markets, where it depreciated by 1.3% to ₦902.45 per dollar.
At the parallel market, the naira was weaker by 7.6% to close at ₦1,340.00 per dollar.
The momentum of activities at NAFEM also dropped by 33.3% to $505.8 million.
Most analysts expected the naira to remain under pressure in the meantime, citing significant demand-supply mismatch.
Cordros Capital analyst stated that forex liquidity conditions would remain tight, pending receipt of expected forex inflows.
“Thus, we expect the pressure on the local currency to persist in the near term.
Nonetheless, foreign investors should monitor development in the forex space with regards to the expected forex inflows as guided by the authorities,” Cordros Capital stated.
Loan For Policy Reform
Earlier, the World Bank stated that it was considering Nigeria’s request to provide $1.5 billion in financing to support key policy reforms.
The Development Policy Financing (DPF) provides direct budget financing and supports countries with reforms to policies and institutions that boost economies and specific sectors.
The President of the Association of Capital Market Academics in Nigeria, Prof. Uche Uwaleke, said Nigeria needed to curb excessive import dependence to support its forex recovery.
“Export-based diversification remains the only sustainable solution to the present forex crisis.
“The strategy of the government appears to focus on the supply side involving borrowing dollars to improve liquidity in the near term.
“But it may not record any significant success except the unbridled demand for forex is dealt with.
“To curb the demand pressure, I suggest the government should compel a change in consumption behaviour by enacting a ‘Buy Nigeria law’ akin to the ‘Buy America Act’ of 1933 and recently the ‘Build America, Buy America Act’ of 2021.
“Also, Nigeria’s import data support revisiting and scaling up the CBN’s currency swap deal with the Peoples Bank of China.’’
“Given that the bulk of Nigeria’s imports are from China, it stands to reason, therefore, to explore ways of bypassing the dollars and settling these transactions in the Yuan.
You May Also Like: Nigeria’s Forex Reserve Sheds $1.65bn
“This was the idea behind the currency swap with China which was largely inadequate in size. To increase the stock of Yuan in our external reserves.
“Nigeria can issue panda bonds, which are bonds denominated in the Chinese Yuan and are considered cheaper than Eurobonds,” Uwaleke said.
However, he explained that the increase in forex reserves was a positive development for the Nigerian forex market.
