Rising Inflation and Dollar Shortage, Nigeria’s Economy Grapples with 54% Drop in Foreign Exchange Inflow

In the first half of 2023 (H1’23), net foreign exchange (FX) inflow into the Nigerian economy saw a significant 54% year-on-year drop, amounting to $7.29 billion, down from $15.86 billion during the same period in 2022. This sharp decline mirrors the acute dollar shortage affecting the FX market, driven by a net FX outflow of $1.69 billion reported by the Central Bank of Nigeria (CBN) in H1’23.

Data from the CBN’s Statistical Bulletin for June 2023 revealed a 55% year-on-year reduction in FX inflow into the economy, reaching $17.17 billion in H1’23 compared to $37.88 billion in H1’22. Similarly, FX outflows decreased by 55% year-on-year to $9.89 billion in H1’23 from $22.02 billion in H1’22. Consequently, net FX inflow dropped by 54% year-on-year to $7.29 billion in H1’23 from $15.86 billion in the corresponding period in 2022.

Autonomous FX sources

Foreign exchange inflow through autonomous sources also declined by 54% to $10 billion in H1’23 from $21.7 billion in H1’22. FX outflow through autonomous sources experienced an 80% year-on-year reduction to $1.03 billion in H1’23, down from $5.13 billion in H1’22. As a result, net FX inflow through autonomous sources fell by 45% year-on-year to $8.97 billion in H1’23 from $16.34 billion in H1’22.

CBN inflow

Further analysis indicated that foreign exchange inflow through the CBN fell by 56% to $7.17 billion in H1’23, compared to $16.4 billion in H1’22. Also, foreign exchange outflow through the central bank decreased by 48% to $8.86 billion in H1’23, down from $16.89 billion in H1’22. Consequently, the CBN recorded a net foreign exchange outflow of $1.69 billion in H1’23, representing a 245% deterioration from the $490 million net foreign exchange outflow it reported in H1’22.

External reserves shed $3.75 billion

As a result of the significant decline in net foreign exchange inflow, Nigeria’s external reserves fell by 10% ($3.756 billion) in 10 months, reaching $33.326 billion on Thursday, October 26, down from $37.082 billion on December 31, 2022. According to the CBN, the external reserves dropped in H1’23 by $2.96 billion to $34.326 billion from $37.082 billion at the end of 2022. In H2’23, the reserves have fallen by $793 million to $33.326 billion.

Addressing the issue of FX flows in the economy, Momodu Omamegbe, Head of Strategy at the Securities and Exchange Commission, stated, “Foreign exchange inflows remain limited, and the Nigerian Upstream Petroleum Regulatory Commission reported that total crude oil production, both blended and unblended, including condensates, recorded a moderate increase of 1.47 million barrels per day in June 2023. This bodes well for our foreign exchange reserves, but production increase should be consistent and sustained. Increasing crude oil production and consequently revenues are critical to improving our foreign exchange liquidity position in the short to medium term. This will undoubtedly have a positive impact on our foreign exchange reserves, with significant exchange rate implications.”

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