“Nigeria’s Forex Reserves See First Gain in Five Months Amid Hopeful Signs”
Nigeria’s foreign exchange (forex) reserves have shown their first positive movement in five months, sparking optimism among experts. Changes in forex management rules, improving crude oil production, and a positive global oil price trend are cited as factors contributing to this turnaround.
Official data from the weekend reveals that forex reserves increased by $1.72 million, closing the week at $33.22 billion. This marks the first accretion in reserves since May 19 this year.
Nigeria’s external reserves had previously closed at approximately $37.08 billion at the end of last year. On January 16, 2023, they peaked at $37.211 billion but subsequently experienced a five-month consecutive decline.
Analysts believe that the Central Bank of Nigeria (CBN) is making positive strides in managing the country’s forex, with the recent removal of restrictions on 43 items bringing optimism and increasing dollar supply to the formal market.
The naira, however, depreciated by 2.3% to N759.20 per dollar at the I & E Window, while turnover at the formal market surged by 77.9%. At the parallel market, the naira dropped by 4.9% to N1,049 per dollar.
Senior Research Analyst, FXTM, Mr. Lukman Otunuga, highlighted the importance of resolving the forex crisis to address Nigeria’s rising inflation. He noted that inflation has been driven by factors like the removal of fuel subsidies, naira devaluation, and security issues affecting food production.
Oil prices have risen about 7% in the past week, with potential for further gains due to escalating tensions in the Middle East and supply-side factors. However, global recession fears could create headwinds on the demand side.
Most analysts agree that removing forex restrictions and recent policy changes could help mitigate forex market volatility and work towards rate convergence.
Afrinvest West Africa commended the reversal of forex restrictions, stating that it has the potential to reduce pressure in the parallel market and curb speculative activity. However, they recommended additional measures to attract the required forex, including securing concessional loans and exploring oil-for-loan agreements.
The World Bank is considering Nigeria’s request for $1.5 billion in financing to support key policy reforms, offering another potential boost to the country’s economic outlook.
In summary, while Nigeria’s forex reserves have shown a positive sign, addressing the root causes of economic challenges remains crucial to ensure sustained stability and growth.