Forex reserves to shrink further as CBN plans $1.7bn arrear payments

Nigeria’s forex exchange reserve is projected to fall in 2022 as the Central Bank of Nigeria (CBN) plans to clear about $1.7 billion in foreign exchange backlog to foreigners and foreign exchange forward contracts, the World Bank has said.

The global bank stated that the nation’s reserves rose to $41.3 billion at the end of 2021, which offered it an opportunity for exchange rate adjustment.

In its ‘Nigeria Development Update for June 2022: The Continuing Urgency of Business Unusual,’ the global bank said, “Boosted by higher oil exports, International Monetary Fund’s Special Drawing Rights allocation in August 2021, and a Eurobond issuance in September 2021, gross official reserves rose to $41.3bn (7.4 months of imports) at the end of 2021; offering an opportunity for exchange rate adjustment.

“Nigeria issued additional Eurobonds for $1.25bn in March 2022. However, gross foreign exchange reserves are projected to decline during 2022, as the CBN is expected to clear the foreign exchange backlog to foreigners (estimated at $1.7 billion as of end-October) and foreign exchange forward contracts.”

According to the bank, direct investments in Nigeria have been low in 2022 because the nation’s fluctuating exchange rate has been discouraging investors.

The World Bank said the nation’s current account improved in 2021 as a result of its economic recovery from COVID-19 and further improvement is expected in 2022 due to increases in oil prices, remittance inflows, and non-oil exports.

Commenting on the development, a professor of Economics and Public Policy at the University of Uyo, Prof. Akpan Ekpo, said, “The backlog is because we don’t have the foreign exchange. The demand for foreign exchange outstrips the supply, don’t forget that the foreign exchange is not our money, our naira is not convertible.