Nigeria’s external reserves have experienced a significant decline, plummeting by $520.22 million over a five-week period, according to data obtained from the Central Bank of Nigeria (CBN). The figures, which stood at $33.396 billion as of October 31, 2023, fell to $33.004 billion as of December 7, 2023.
Governor Olayemi Cardoso of the CBN highlighted the challenges faced by the country’s economy during a recent address at the Chartered Institute of Bankers of Nigeria’s 58th Annual Bankers’ Dinner. He noted that the continuous decline in Nigeria’s crude oil production in recent years had further weakened economic diversification efforts. This decline resulted in reduced government revenue, foreign exchange inflows, and a simultaneous increase in public expenditures, contributing to a deterioration in macroeconomic indicators.
Cardoso stated, “Consequently, we have seen the fiscal deficit and public debt increase, placing additional strain on external reserves and contributing to exchange rate instability.” He emphasized the impact of challenges such as high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
The Governor acknowledged that these challenges had led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation had affected asset quality and solvency ratios. Additionally, the persistent depreciation of the naira posed a significant risk for domestic banks with foreign exchange exposures.
Despite the challenges, Cardoso expressed optimism about the measures taken by the government, such as the removal of the petrol subsidy and the adoption of a floating exchange rate. He anticipates positive effects on the economy in the medium-term, expecting these measures to enhance investor confidence, attract capital inflows, stimulate domestic investment, and ultimately improve the level of external reserves.
