Nigeria’s Foreign Reserves fell to its lowest in three months after the Central Bank of Nigeria (CBN) paid some of the detained funds from a foreign airline a few days.
On August 26, 2022, the CBN released $265 million of the $650 million in stranded funds.
Data from the CBN shows that the foreign exchange reserves, which provide the central bank with the means to protect the naira, decreased from $38.96 billion on August 26, 2022 to $38.69 billion as of September 14, 2022.
The country’s foreign exchange reserves have decreased from $40.5 billion at the beginning of the year by $1.81 billion this year.
Foreign airlines had bemoaned their inability to obtain funds from tickets sold in the nation prior to the part payment due to the dollar scarcity.
The majority of them turned to buying dollars on the black market, where they could get them for as much as N710 per dollar at the moment, as opposed to N434 per dollar at the official rate.
According to Bismarck Rewane, managing director of Financial Derivatives Company, “The CBN released $265 million out of the $650 million in frozen funds, triggered by Emirates who threatened to abandon the Nigerian market,” in a presentation given in September at the Lagos Business School.
He said that only 50% of the arrears had been paid, thus airlines were still refusing to accept reservations.
As reservations for visiting friends and family in December increase, the backlog is continuously expanding, according to Rewane.
He claims that Nigeria’s oil output increased slightly by 7,000 barrels per day (bpd) in July to reach 1.183 million bpd, which is still below the OPEC+ limit (1.80 million bpd) for the month.
Rewane was concerned that pipeline theft, vandalism, inadequate upstream infrastructure, and other operational issues posed risks to Nigeria’s oil output and would reduce tax revenue and the growth of the country’s foreign reserves.
The CBN can repatriate the funds, according to analysts, but it is being cautious due to demand pressure in the foreign exchange market.
“In the near future, the CBN should figure out a phased repatriation of international airlines’ captive funds, allowing them to pay for local expenses like gasoline in naira. Rate harmonisation is ultimately the only way to discourage speculative behavior, boost exports, and encourage import substitution, according to Taiwo Oyedele, head of PwC’s tax and corporate advising services.
He contends that the FX scarcity, which appears to be becoming worse by the day, should be addressed with both an urgent and long-term approach.
“Remember that virtually every sector of the economy, including manufacturers, is having trouble sourcing FX; the airlines are only one out of many,” he said.
The departure of foreign portfolio investors from Nigeria was one of the causes of the fall in external reserves, according to a report by FBNQuest. A significant source of foreign investment into the nation is through portfolio investments.