Recent data from the Central Bank of Nigeria (CBN) uncovered a sharp decline of $520.22 million in the country’s external reserves over the span of five weeks. The figures, previously at $33.396 billion as of October 31, 2023, plummeted to $33.004 billion by December 7, 2023. Earlier revelations by the CBN indicated a decline from the reserves’ initial value of $37.07 billion on January 3, 2023, to $33.237 billion by September 29, 2023.
During the recent Chartered Institute of Bankers of Nigeria’s 58th Annual Bankers’ Dinner and the Institute’s 60th-anniversary celebration in Lagos, Governor Olayemi Cardoso of the CBN highlighted Nigeria’s continuous decline in crude oil production. This decline has exacerbated the already inadequate economic diversification, resulting in a decline in government revenue, reduced foreign exchange inflows, amplified public expenditures, and a deterioration in macroeconomic indicators. These circumstances have constrained policy options, consequently elevating fiscal deficit and public debt, exerting added pressure on external reserves, and contributing to exchange rate instability.
An in-depth evaluation of the economy uncovered a slew of significant challenges, including escalating and persistent inflation, insufficient foreign exchange supply, devaluation of the exchange rate, restricted external reserves, diminished output, and elevated unemployment rates. Cardoso also pointed out how high inflation has adversely affected asset quality and solvency ratios within the banking system. Furthermore, the continuous depreciation of the naira poses considerable risks for domestic banks that have foreign exchange exposures.
Nevertheless, Cardoso expressed optimism about government interventions, such as the removal of petrol subsidies and the adoption of a floating exchange rate. He anticipates these measures to yield positive impacts in the medium term, including enhanced investor confidence, increased capital inflows, boosted domestic investment, and an eventual improvement in the level of external reserves.
