Naira Exchanges For N1,280/$ At Parallel Market As External Reserves Decreases

The exchange rate for the US dollar to the Nigerian Naira on the physical black market was N1,280/US$ on Monday, compared to N1,260 last week.

VerseNews gathered that in the Nigerian Autonomous Foreign Exchange Market (NAFEM), the Naira improved to N838.95 to the dollar from N890.54 last Friday.

The exchange rate fluctuated throughout the week, reaching a low of N1,089.51/US$ on Tuesday and a high of N856.57/US$ on Monday.

This volatility reflects the ongoing challenges in stabilizing the Naira’s value in the face of economic pressures.

In the peer-to-peer (P2P) market, the Naira traded at around N1,272/$ on Monday, up from the weekend’s rate of N1,255/$.

Meanwhile, data from the Central Bank of Nigeria (CBN) revealed a decrease in Nigeria’s gross official reserves by US$91.6 million to USD32.9 billion in December 2023.

This indicates a decline of approximately US$4.2 billion in 2023, with an average monthly depletion rate of -USD348 million.

Analysts at FBNQuest attribute the downward trend to strong demand for foreign exchange, weak accretion from export proceeds (primarily crude oil), and declining foreign portfolio inflows.

This ongoing decrease in reserves presents concerns for the country’s financial stability and has implications for the Naira’s value on both the official and parallel markets.

The mixed performance of the Naira across various markets and the decline in foreign reserves highlight the complex economic challenges facing Nigeria.

Policymakers and economic experts are closely monitoring these trends to gauge the health of the nation’s economy and currency stability.

The analysts stated in an advisory note to client, “This is mainly due to the strong demand for foreign exchange by end-users, weak accretion to the reserves from export proceeds (primarily crude oil), and the declining trend in foreign portfolio inflows.”

The firm noted that total reserves as at end December 2023 covered 7.7 months of merchandise imports per the balance of payments for the 12 months to June 2023 and 5.7 months “when we add imported services.”

However, for a more accurate picture, FBNQuest stated that there should be adjustment in the gross reserve figure for the pipeline of delayed external payments and the encumbered portion of the reserves.

The reserve cover of 7.7 months (5.7 months including services) appears to have improved compared to the 7.1 months of merchandise import cover (5.3 months including services) as of Jun ‘23.

“However, this apparent enhancement is primarily attributed to import constraints resulting from limited access to foreign exchange for importers.

“A significant factor worth highlighting is the -14percent year on year (y/y) decline in total merchandise imports to US$51.6billion for the 12 months ending June 2023 compared with the US$60.0billion for the year earlier period ending June 2022.

“Late last year, the CBN began a gradual reduction of the backlog of foreign exchange (fx) forwards.

“Roughly USD2billion has been successfully cleared from an estimated outstanding amount of US$7billion.

“We anticipate limited accretion to the external reserves this year due to challenges in raising Nigeria’s crude oil output from about 1.3 million barrels per day (mb/d) toward the 1.78 mbd envisaged in the 2024 budget.

“Regarding pricing, expected OPEC production cuts may be offset by higher non-OPEC oil output, notably the anticipated rise in US production. This is likely to keep oil prices in equilibrium.