The Central Bank of Nigeria sold a sum of $18.03 billion of foreign exchange at various exchange windows in 2021, which represents a decline of 18.6% from the $22.16 billion sold in 2020 and a down 36.9% from the $36.9 billion recorded in 2019.
This is according to information gathered by Nairametrics from the apex bank. The decline follows severe currency liquidity issues, which have plagued the Nigerian economy since the covid-19 pandemic hit in 2020. Additionally, the decline could be attributed to the halt in the sale of dollars to exchange office operators in July 2021.
The Central Bank financed a large portion of Nigeria’s foreign exchange obligations, in an effort to maintain the stability of the local currency. The currency continued to depreciate on the black market, due to increased and sustained demand for currency and a declining inflow of currency.
CBN disaggregated data shows that $13.29 billion was sold to the Investors and Exporters, SMEs and Invisibles window, accounting for about 73.7% of total currency sales during the period. under review.
Additionally, $2.77 billion was sold to BDC operators, between January and June 2021, before the CBN halted sales to them in July 2021. Meanwhile, $1.98 billion was sold interbank, which only improved in the middle of the year, following the ban on currency sales. at BDCs.
Currency liquidity tightening
Nigeria continues to suffer from the ripple effect of the COVID-19 pandemic, which has caused significant foreign exchange constraints in the economy, with capital inflows falling to a low of $9.66 billion in 2020, falling to $6.7 billion in 2021.
In the same vein, the international trade balance remained in the negative zone, triggered by an increase in import duties above normal and export earnings below expectations. Notably, Nigeria’s foreign trade balance for 2021 has fallen to a deficit of 1.94 trillion naira, which is the highest foreign trade deficit on record.
Nigeria’s exports increased by 51% to N18.91 trillion in 2021 from N12.52 trillion recorded the previous year. However, the increase in export earnings could not offset the 64.1% rise in the import bill, which stood at N20.84 trillion.
Consequently, a contingent of currency flight triggered a negative balance of payments of $5.26 billion in 2021, further aggravating the pressure on the local currency, hence the need to turn to the external reserve.
External loans to the rescue
Continued intervention in the foreign exchange market by the CBN caused Nigeria’s external reserve to plunge, falling to $33 billion in June 2021, hovering around a critical region before multiple external financings and the recovery of the foreign exchange market. crude oil does not raise the reserve level. .
Recall that Nigeria raised $4 billion through the issuance of Eurobonds in September 2021, in what has been dubbed one of the biggest exchanges on the African continent of the year, the The issue’s backlog peaked at $12.2 billion.
Similarly, Nigeria also secured an allocation of $3.35 billion in SDRs from the Domestic Monetary Fund (IMF) in 2021, which was aimed at boosting the Nigerian External Reserve, a move that has paid off. , with the level of reserves reaching $40 billion in October. 2021. Meanwhile, external reserves currently stand at $39.7 billion as of April 13, 2022.
Due to additional debt obtained by the federal government, Nigeria’s external debt profile rose to $38.39 billion as of December 2021 from $33.35 billion recorded at the end of 2020.
What happened in the foreign exchange market?
The exchange rate between the naira and the US dollar fell significantly by 6.03% in 2021 to close at N435/$1 at the end of trading on Friday, December 31, 2021, from N410.25 for a dollar recorded in the corresponding date of last year.
Meanwhile, in the parallel market, which is a more volatile market, the naira crashed against the US dollar to close at N565/$1 on Dec 31, 2021 from N460/$1, which was recorded at the end of the previous year.
The market differential between the official market and the black market was 49.75 naira last year. It has now widened to 140.74 naira as rising demand for scarce currencies drives the exchange rate to record lows in the unofficial market.