External reserves continue to fall, losing $337 million in two weeks

Nigeria’s external reserves decreased by $337 million in the first two weeks of August, continuing a downward trend in the middle of last month.

External reserves declined to $38.882 billion on Thursday, August 11th, 2022, from $39.219 billion at the end of July 2022, according to data from the Central Bank of Nigeria.

This means that the external reserves have lost $563 million since July 18, when the present negative trend began.

Before July 18, the external reserves had maintained a 40-day upward trend, growing by $976 million to $39.445 billion from $38.421 billion on June 6th, supported by an increase in crude oil prices, which account for more than 80% of the country’s foreign exchange revenues.

Analysts at Financial Derivatives Company Limited, FDC, ascribe the reserves’ decreasing fortunes since July 18 to increasing dollar sales by the Central Bank of Nigeria, CBN, to stabilize the exchange rate.

While forecasting additional declines in external reserves, they argued that the apex bank’s enhanced dollar supply would lead to naira appreciation in both the official and illicit markets.

In the FDC Bi-Monthly Economic Bulletin, they stated:

“The depletion of reserves was mostly due to the CBN’s provision of foreign exchange to stabilize the currency.”

“The CBN is anticipated to intensify its attempts to stabilize the currency by delivering foreign exchange to the I & E (Investors and Exporters) window, which is expected to continue its downward trend.”

“High oil prices may impact the country’s external reserves less due to the country’s low oil production levels.”

“Continual depletion of external reserves is likely to dissuade the CBN from supplying foreign exchange in the forex market.” This might exacerbate currency depreciation when demand exceeds supply.”