AT the foreign exchange (forex) the Naira weakened by 11.43percent week-on-week to a historic low of N1,170/$1 at the parallel market, largely attributed to speculative activities by the end of the week,resulting in a market premium of N361.73.
This is even as data from the Central Bank of Nigeria (CBN), has shown that the the country’s gross official reserves fell significantly by $717million month on month (m/m) to $33.2billion in September 2023.
Experts say this is a marked decline compared to the previous month, which saw a modest increase of $2million to almost $34billion. With the exception of Aug ‘23, the gross official reserves have steadily declined for 12 months in a row. This year alone, the reserves have decreased by roughly US$3.8billion, resulting in an average monthly decline of $427million.
Analysts at FBNQuest Research said the consistent decline in the gross official reserves reflects the heightened demand pressure for forex amidst a severe supply deficit.
“We attribute the significant decline, in part, to substantial external debt service payments made during the month, driven by the volume of issuances within that period.
“Total reserves as at end-Jul ’23 covered 6.8 months of merchandise imports on the basis of the balance of payments for the 12 months to Dec ‘22 and 5.3 months when we add services,” the firm stated.
However, for a more accurate picture, the firm said it must adjust the gross reserve figure (and the import cover) for the pipeline of delayed external payments, which have been estimated within a wide range of US$3billion to US$10billion by various sources.
Last week before last, the CBN lifted restrictions on foreign exchange for 43 items which had been denied access to foreign exchange on the official fx window since 2015.
The bank cited the need to alleviate demand pressure from the importation of these items on the parallel market.
“In our view, the CBN’s capacity to resolve the lingering challenges with fx availability is limited.
The solution lies in addressing the structural issues contributing to the supply deficit – which is mainly related to the need to boost the nation’s export productive capacity. This falls primarily within the purview of fiscal authorities.
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