CBN FX Market Interventions Hit $12.74bn as External Reserves Narrow by $3.41bn in 11 Months

Kayode Tokede 

Following the drive to defend local currency, Naira, the Central Bank of Nigeria (CBN) interventions in foreign exchange market reached $12.74billion in eight months of 2022, the CBN economic reports for the period under review has revealed.

However, when compared with the same period in 2021, the interventions declined by 13.6 per cent from $14.74 billion.

The CBN has maintained intervention in the Secondary Market Intervention Sales (SMIS) windows, foreign exchange sales at the Investors & Exporters (I&E) and the Small & Medium Enterprises (SME) windows, and the interbank segment.

A breakdown revealed that the CBN total foreign exchange sales to authorised dealers stood at $1.32 billion in August, a decrease of 24.6 per cent from $1.75 billion in July 2022.

For June, it recorded the highest intervention in the foreign exchange market, crossing the $2billion mark to $2.07billion. 

However, the CBN total intervention in foreign exchange market in May stood at $1.18 billion, a decrease of 24.4 per cent, below $1.56 billion in April.

The figure dropped to $1.82 billion in March from $1.39 billion reported in February.

According to January economic report, the total foreign exchange sales to authorised dealers by the CBN was at $1.65 billion in the month.

The report for the month of August revealed that the $1.32billion interventions disbursed to matured swaps, foreign exchange sales at the I&E, SME windows, as well as the Secondary Market Intervention Sales (SMIS), decreased by 67.7 per cent, 53.0 per cent, 25.3 per cent and 12.8 per cent respectively, to $0.09 billion, $0.21 billion, $0.15 billion an $0.63 billion, below their respective levels in the preceding month.

“Interbank sales/invisible forex sales rose by 99.9 per cent, to $0.25 billion, compared to the sales in the previous month,” the report disclosed.

The economic report disclosed that the average foreign exchange turnover at the I & E window was $110.18 million in August 2022, a decrease of 3.6 per cent, relative to $114.31 million in July 2022.

The exchange rate of the naira depreciated at the I&E window relative to the level in the preceding month. The average exchange rate of the naira per dollar at the I&E window depreciated by two per cent to N426.04 against the dollar to N417.38 against the dollar in the July.

On a year-till-date (YTD) performance, naira at the I & E window has depreciated by 2.41 per cent from N416.05 against the dollar in January 2022.

According to the report, the stock of external reserves was above the international benchmark of three months of import cover.

“The external reserves stood at $38.46 billion at end August 2022 from $38.31 billion at end-July 2022. The external reserves could cover 6.6 months of import for goods and services or 8.5 months of import for goods only,” the report stated.

 A check on the CBN’s website, however, revealed that external reserves stood at $37.11billion as off November 2022, representing a decline of $3.41billion from $40.52billion it closed in 2021.

The report further revealed a lower crude oil and gas export receipts of $4.58 billion was recorded in August 2022, compared with $5.39 billion in July 2022.

“A breakdown by the main components reveals that crude oil export receipts declined by 18.0 per cent to $3.89 billion, relative to S$4.74 billion in the preceding month. Recent crude oil price trends and domestic production challenges were attributed to the decline in crude oil export receipt. In contrast, gas export receipts increased by 7.0 per cent to $0.70 billion, compared with $0.65 billion in the preceding month. In terms of share, crude oil and gas exports accounted for 88.1 per cent of total exports, with oil constituting 74.7 per cent and gas export accounting for 13.4 per cent. Non-oil export earnings fell by 0.8 per cent to $0.62 billion in August 2022, compared with the level in July 2022, largely, due to a 5.4 per cent decline in electricity export receipts to $0.02 billion from the level in the preceding month, ”it added.

The report explained that weak domestic demand on the back of rising global inflation and supply chain disruptions, have continued to weigh on Nigeria’s imports.

“Provisional data shows that aggregate import decreased by 3.7 per cent to $4.50 billion from $4.67 billion in the preceding month. The decline in import was solely driven by the 23.3 per cent decrease in oil import to $0.87 billion in the review period, compared with $1.14 billion in July 2022, as the demand-supply gap in the domestic economy continue to narrow. Conversely, non-oil imports rose by 2.6 per cent to $3.63 billion, compared with $3.54 billion in the preceding month. In terms of composition, non-oil import accounted for 80.7 per cent, while oil constituted the balance of 19.3 per cent of the total, “the report submitted.

Analysts believe dwindling crude oil production and continuous intervention by the CBN in the official market might have contributed to the drop in external reserves.

“The bulk of our foreign exchange earnings come from the oil sector. However, Nigeria has not been meeting its OPEC crude oil production quota due to the oil theft and pipeline vandalism.

“In addition, the continuous intervention by the CBN in the official market to maintain stability of the local currency might have contributed to the setback recorded in external reserves during the period, ”said analyst at PAC Holdings, Mr. Wole Adeyeye.