According to the latest figures from the Apex bank, a total of $43 billion in foreign currency went through Nigeria’s central bank as outflows in 2020. This contrasts with the CBN’s $66 billion in foreign currency outflows in 2019.
The CBN collected $40 billion in foreign currency inflows this year, down from $62 billion the previous year. In 2020, the Central Bank of Nigeria had a deficit, or a net outflow of foreign currency, of $3 billion (2019: $4 billion).
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Nigeria faced an unbearable foreign currency crisis in 2020, as a drop in oil prices, global lockdown due to Covid-19, and a lack of capital importation impacted Nigeria’s foreign currency balances, resulting in multiple devaluations throughout the year and a wide disparity between the official and parallel market exchange rates.
Dip in oil and non-oil dollars
To improve the country’s foreign currency balances in previous years, the central bank had to rely on oil dollars, non-oil imports, and capital importation.
However, when Covid-19 raged on and international investors stayed away, all three major sources saw large drops. For example, oil profits brought in $15.8 billion in foreign currency in 2019, compared to $10.5 billion in 2020.
Forex inflows from non-oil sources decreased from $40.8 billion in 2019 to $29.6 billion in 2020.
However, even though inflows to the CBN decreased in 2020, the bank still had to allocate all of its foreign currency outflows to other responsibilities like as sales to BDCs, sales through the I&E window, sales to importers, and fulfilling other government obligations.
BDC operators received $5.3 billion in sales from the CBN throughout the year, compared to $13.6 billion in 2019. In reality, between the months of April and August in 2020, the apex bank suspended the selling of FX to BDCs.
The CBN, on the other hand, only earned $2.6 billion in sales from the Investor and Exporter window, down from $5.9 billion a year before. Between February and July 2020, no sales to this window were made, the same as the BDCs. The CBN, on the other hand, continued to sell in the SMIS window, releasing $6.8 billion over the year.
The CBN received $3.35 billion from the IMF in April 2020 and $2 billion from the World Bank in December.
Dip autonomous sources
Nigeria also had decreased forex inflows from autonomous or independent sources like non-oil exports, capital inflows, and Invisibles during the year. For the Nigerian economy, forex from autonomous sources is a stable source of hard currency, as it complements the central bank’s support of forex demand.
Foreign exchange flows through autonomous sources, on the other hand, were $75 billion in 2020, up from $85 billion in 2019. The amount in Nigerians’ domiciliary accounts, a crucial source of currency liquidity for banks, was one of the reasons for the dip. Only $23 billion was received from the source throughout the year, down from $30 billion the year before. This is due to the CBN’s numerous forex regulations, which discourage Nigerians from depositing cash forex into their accounts. There were also concerns that depositing forex via wired sources might result in additional withdrawal restrictions.
Home remittances, which were a major source of forex input for the CBN in 2019, decreased to $1.2 billion from $3.2 billion in 2019. This may have sparked the central bank’s cash 4-dollar plan, which has now been indefinitely prolonged. The cash 4-dollar initiative is aimed at Nigerians in the diaspora who want to send money home to their loved ones.
Due to foreign exchange restrictions and the policy of needing to withdraw funds in dollars, Nigerians frequently abandon remittances through official channels such as the central bank during instances of forex crisis. When Nigeria was hit by a similar currency crisis in 2016, home remittances decreased to $420.8 million.
The apex bank now permits Nigerians to withdraw their remittances in hard currencies, which they can then sell on the underground market, as part of its Naira 4-dollar program. The goal was to help improve liquidity at the retail end of the black market, but that hasn’t happened since the exchange rate has dropped to N495/$1.
There is also no public data on the performance of the naira4dollar plan since it was launched in March.
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