CBN: Nigeria’s Net External Reserves Rose from $859m in 2023 to $40bn

The Central Bank of Nigeria (CBN) has disclosed that Nigeria’s net usable external reserves stood at just $859 million in the second quarter of 2023, before rising to about $40 billion under the current administration of Governor Olayemi Cardoso.

The CBN Deputy Governor, Corporate Services, Dr Muhammad Abdullahi, disclosed this on Tuesday in Abuja at the opening of the 38th Seminar of Finance Correspondents and Business Editors.

Abdullahi said the apex bank inherited a highly fragmented foreign exchange market in 2023, characterised by multiple exchange-rate windows, a large parallel market and significant uncertainty over access to foreign exchange.

According to him, the gap between the official and parallel-market exchange rates averaged more than 60 per cent in 2022 and exceeded 100 per cent at some points later that year.

He said the World Bank had estimated that the implicit subsidy created by the exchange-rate structure cost Nigeria about three per cent of its Gross Domestic Product in 2022.

The Deputy Governor said the pressure on the foreign exchange market also affected the country’s external reserves, noting that the gross reserves figure did not fully reflect the amount available for use after accounting for short-term obligations.

He added that outstanding foreign-exchange forward claims had exceeded $7 billion at the time, further increasing uncertainty for businesses and investors.

Abdullahi said declining capital inflows and uncertainty over access to foreign exchange made it difficult for businesses to price goods, plan investments and meet their financial obligations.

He explained that the challenges informed a series of reforms implemented by the CBN over the past three years.

He said the first major step was taken in June 2023, when the CBN consolidated the existing foreign-exchange windows and moved towards a willing-buyer, willing-seller framework.

The apex bank subsequently removed restrictions that had prevented 43 categories of imports from accessing the official foreign-exchange market and reviewed outstanding forward claims.

Abdullahi said valid claims were subsequently settled, helping to address what he described as a major source of uncertainty for businesses and investors.

He added that the reforms were also designed to improve price discovery, strengthen liquidity management and build a more resilient banking system capable of supporting the economy through the adjustment process.

Meanwhile, the CBN Director of Banking Supervision, Dr Olubukola Akinwunmi, said the apex bank had strengthened its supervisory oversight of commercial banks to safeguard financial-system stability.

Akinwunmi said tighter supervision was necessary to prevent weaknesses within the banking sector from developing into conditions capable of undermining the stability of the financial system and its ability to support economic growth.

He also disclosed that Nigerian banks are prohibited from investing more than 10 per cent of their shareholders’ funds in offshore subsidiaries.

According to him, the regulation predates the current CBN administration but was not being implemented with sufficient diligence.

The CBN officials said the measures formed part of broader efforts to strengthen the financial system, improve foreign-exchange market functioning and enhance the resilience of the Nigerian economy.