Nigeria is facing a significant depletion of its foreign-exchange reserves, marking a concerning trend not observed in four years. This development has sparked apprehension amid suspicions that the central bank may be exhausting its dollar holdings to bolster the naira, following its commitment to allowing the currency to float more freely.
According to calculations by Bloomberg, liquid reserves have plummeted by 5.6% since March 18, coinciding with the commencement of the naira’s rebound from its record-low levels against the dollar.
As of April 12, Nigeria’s foreign reserves stand at $31.7 billion, reflecting the most substantial decline within a similar timeframe since April 2020, based on data compiled by Bloomberg.
The decline in reserves comes as the Central Bank of Nigeria grapples with stabilizing the naira amidst economic turbulence and fluctuating global currency markets.
The commitment to a more flexible exchange rate regime was initially lauded as a step towards market-driven currency valuation. However, the rapid depletion of reserves has raised concerns about the sustainability of this approach.
Observers point to the delicate balance between supporting the naira’s value to maintain stability in the economy and ensuring an adequate level of reserves to safeguard against external shocks.
The current trajectory raises questions about the central bank’s strategy and its long-term implications for Nigeria’s economic resilience.
Stakeholders are closely monitoring developments in the foreign-exchange market and urging prudent management of reserves to mitigate risks and maintain confidence in the economy.