The foreign exchange segment of the Nigerian economy experienced a downward trend in the first half of 2023, with a 35% year-on-year decline in the volume of dollars traded (turnover) in the Investors and Exporters (I&E) window. Additionally, the value of the Naira depreciated by 81% year-on-year, and the nation’s external reserves decreased by 7.7%.
Data from FMDQ revealed that turnover in the I&E window fell to $13.11 billion in H1’23 from $20.23 billion in H1’22. However, quarter-on-quarter turnover increased by 1.07% in Q2’23, while month-on-month turnover declined by 3.5% in June.
As a result of measures implemented by the Central Bank of Nigeria (CBN) on June 14th, 2023, the Naira depreciated in the I&E window by 81% year-on-year and 65.5% month-on-month. In the parallel market, the Naira depreciated by 9.9% year-on-year and 0.2% month-on-month.
The decline in external reserves by $2.86 billion or 7.7% was attributed to lower foreign exchange inflow from crude oil sales and foreign investment.
Analysts are optimistic that the downward trend in the foreign exchange market will be reversed in the second half of the year, citing the impact of eliminating multiple exchange rates and reintroducing willing buyer, willing seller in the I&E window. They expect the harmonization of exchange rates and the elimination of gasoline subsidies to ease pressures on the external reserves.
However, in the short term, the foreign exchange market is expected to remain volatile, with the Naira likely to trade within a range of N656/$ to N795/$ in the I&E window. The external reserves may continue to deplete due to concerns over weak global demand and falling oil prices. In the medium term, the reduction in forex restrictions and administrative controls is expected to attract foreign investment inflows and improve foreign investor confidence, leading to a reduced depletion of the reserves.
