Business
We inherited net external reserve at $859m — CBN
By EmekaAnaeto, Babajide Komolafe & Emma Ujah
The Central Bank of Nigeria (CBN) has revealed that the nation’s Net External Reserve had plunged to a mere $859 million as of the second quarter of 2023, a clear negative position unprecedented in the history of the bank, and also less than a month imports bill.
The apex bank said, three years after, it has grown back the figure to $40 billion under the current Governor, MrOlayemiCardosos.
The Deputy Governor of the bank in charge of Corporate Services, Dr. Muhammad Abdullahi, disclosed this at the opening of the 38th Seminar of the Finance Correspondents and Business Editors, in Abuja, yesterday.
He said that the current regime at the apex bank met a myriad of challenges when it assumed duties in 2023 and had to undertake various reforms to effectively tackle them.
He stated:”By 2023, Nigeria’s foreign exchange market was deeply fragmented with multiple windows operating alongside a massive parallel market, which made it incredibly difficult for businesses to know which rate would apply to them or when foreign exchange would even be available.
“The gap between the official and parallel rates averaged over 60% in 2022 and exceeded 100% at some points later in the year.
‘‘Just to put that into perspective, the World Bank estimated that the implicit subsidy created by this exchange rate setup cost us about 3% of our GDP in 2022.
“The pressure extended to our external reserves. The gross figure did not tell the whole story. After accounting for identified short-term obligations, the Bank’s data put net usable reserves at US$859 million in the second quarter of 2023. Outstanding foreign exchange forward claims had also grown to more than US$7 billion, adding to uncertainty for businesses and investors
“Meanwhile, capital inflows had fallen, and uncertainty over access to foreign exchange made it difficult for businesses to price goods, plan investments and meet their obligations.
“Each problem added to the others. Administrative allocation weakened price signals and created opportunities for arbitrage. Excess liquidity increased pressure on the foreign exchange market. Uncertainty then pushed more activity away from the formal market, placing further strain on confidence.
He said these situations formed the bases for all the various reforms undertaken by the apex bank over the past three years.
He stated: “The foreign exchange market needed clearer prices and more reliable trading arrangements, but those changes would be difficult to sustain without tighter control of liquidity. We also needed stronger banks capable of operating through the adjustment. That was the thinking behind the reforms that followed.
“The first step in the foreign exchange market came in June 2023, when the Bank consolidated the existing windows and moved towards a willing-buyer, willing-seller framework.
‘‘We subsequently removed the restrictions that had kept 43 categories of imports from the official market and reviewed theoutstanding forward claims. The claims found to be valid were settled, addressing a major source of uncertainty for businesses and investors.”
Meanwhile, in his presentation, the Director of Banking Supervision of CBN, Dr. Olubukola Akinwunmi, said that the apex bank has, increased its oversight of the banks.
He revealed that CBN has tightened its supervisory role to prevent the banking system from sliding into dire situations that could undermine stability and its ability to support the economy.
He also revealed that the apex bank has now made it impossible for any Nigerian bank to invest more than 10 percent of its Shareholders’ Fund in offshore subsidiaries.
Akinwunmi said the regulation had been there before the current CBN administration but was not implemented diligently.