By Adedapo Adesanya
Nigeria’s foreign exchange reserves dipped to a six-year low of $32.87 billion at the end of December 2023, one of the most tumultuous years for the foreign exchange market.
According to data from the Central Bank of Nigeria (CBN), this level was last seen in September 2017 when the reserve fell to $32.17 billion.
This came as the central bank tried to prop up the Naira in a year in which it fell more than 49 per cent following a spate of devaluations after a move by the administration of Mr Bola Tinubu to unify the exchange rate and rid Africa’s largest economy of its multiple exchange rate regime.
Nigeria’s multiple FX segments are now collapsed into the Nigerian Autonomous Foreign Exchange Market (NAFEM) meaning applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks (DMBs).
However, the forex crisis heightened after the country unified the rates due to low supply as players competed for scarce FX and to make their ends meet, many found their way to other unregulated segments, including the black market or the Peer-to-Peer (P2P) electronic channels.
According to Reuters, the Naira was the third worst-performing global currency in 2023.
Also, the country could not clear a substantial amount out of over $6 billion backlog of unsettled forwards, despite moves by the government to close deals to boost the forex needs of the country.
The Governor of the CBN, Mr Olayemi Cardoso, who replaced Mr Godwin Emefiele, said he would allow market forces to determine exchange rates while setting clear, transparent, and harmonised rules governing market operations.
Despite this promise, many analysts project that the Naira’s downward momentum is likely to continue through much of 2024.
There have been calls for President Tinubu to boost oil production, which stood at 1.45 million barrels as of the third quarter of 2023 and accounts for 80 per cent of Nigeria’s foreign exchange earnings.
Other measures include driving foreign investment and enacting structural reforms ranging from debt reduction to increasing the country’s tax base and cutting down on the expensive cost of governance.
