Nigeria’s forex buffer down 6.85% YTD, lowest in 2-month ~CBN
* Nigeria now faces dollar shortage
* Years of indiscipline and improper fx allocation
* Businesses may downsize on lack of access to forex
* CBN failure to allow market mechanism determine rates
Nigeria’s foreign exchange reserves fell to their lowest in two months to $35.89 billion by July 28, the Central bank of Nigeria (CBN) said on Friday, widening the year-to-date decline to 6.85 percent.
The nation’s foreign exchange buffer has consistently declined since June 4, when it peaked at $36.59 billion by May 29, after the inflows of dollars from money recovered from Late Sani Abacha loots and the disbursement of credit facilities from the International Monetary Fund (IMF) to support the country’s balance of payment.
The forex reserves also declined 0.80 percent month-on-month and down 20.13 percent year-on-year from the $44.94 billion the reserves were on July 29, 2019.
The forex exchange buffer had started the year at $38.53 billion but took a dive downward in the wake of the outbreak of the coronavirus pandemic which disrupted the global supply chain and caused demand for crude oil, Nigeria’s mainstay to fall sharply.
The CBN had twice this year adjusted the exchange rate downward in a bid to conserve available dollar and curb pressure on the foreign exchange reserves.
However, in spite of the two devaluations of the naira at the official market this year, the CBN had been unable to meet domestic demand for the dollars from importers and even the offshore portfolio investors wanting to take out their money from the country.
The Director-General of the Lagos Chamber of Commerce and Industry, Muda Yusuf said that the dollar shortage is hitting most of its 2,000 members hard.
“If the situation persists it will lead to lay-offs, If you are not producing, there will be a shortage of goods in the market, prices will go up,” Yusuf told a news agency in the week.
Many companies are not resorting to source their dollar needs from the black market, where the naira trades at around 20 percent below the official rate, making dollar purchases even more expensive.
The naira closed at N473 per dollar on the parallel market on Friday, down from N472 to the dollar on Monday, while the local currency closed 0.06 percent down to N389.25 to the dollar on the Investors’ & Exporters’ FX Window (I&E).
A former director of the regulatory bank said the currency challenges being faced by Nigeria is caused by the failure of the CBN to do the right thing when it has the opportunity to stablise the market.
According to the director who is now into private practice, the CBN misled the market with its intervention in the domestic market and by encouraging multiple exchange rate windows, which provided room for arbitraging by the privileged few.
Before March 20, when the CBN first devalued the naira, the country operated about five different forex window with different rate ranging from N306 to the dollar on the CBN window, N360+ at the parallel market, NIFEX window was going fro around N359 to the dollar while the I&E window was trading at another rate.#GFD