Naira may see a rebound in the coming weeks as a result of accretion in external reserves which was attributed to the successful over-subscription of the recent Federal Government’s domestic dollar bond.
The maiden domestic dollar-denominated bond was initially meant to raise $500 million, but instead, it achieved over $900 million in subscriptions.
The domestic FGN US dollar bond represents a significant opportunity for investors looking to participate in the Nigerian economy while earning returns in US dollars.
Significantly, Nigeria’s external reserves saw a notable boost of $424.68 million between August 30 and September 10, signaling an improved financial landscape for the country.
As a result of the over-subscription of the bond, the naira gained the most in almost two months.
The unit surged 4.8 percent against the dollar last Wednesday, the biggest increase since July 22, according to data compiled by Bloomberg.
The currency closed at N1,558 per dollar, its strongest level against the greenback since Aug. 21.
The data, sourced from the Central Bank of Nigeria (CBN) and analyzed on Friday, revealed an upward trend in foreign exchange reserves, a crucial buffer for stabilising the naira, financing imports, and managing external liabilities.
The reserves grew from $36.305 billion on August 30 to $36.730 billion by September 10, reflecting a 1.17 percent increase over the 11 days.
However, the upward trajectory experienced a minor setback on September 2, when reserves dipped slightly by $61 million to $36.244 billion.
This decline was swiftly followed by a recovery to $36.274 billion on September 3, an increase of $30 million.
Further analysis of the data showed reserves returning to the August 30 level of $36.304 billion by September 4. The positive trend continued, with reserves rising to $36.337 billion on September 5, and a more substantial gain of $55 million on September 6, bringing the total to $36.392 billion.
The most significant surge occurred between September 6 and September 9, with reserves increasing by $250 million to $36.642 billion. This momentum carried into September 10, as reserves climbed an additional $88 million to $36.730 billion.
The CBN attributed this growth to several factors, including shifts in the foreign exchange market, evolving international trade patterns, institutional changes in the economy, and structural adjustments in production.
Despite this recent uptick, Nigeria’s reserves had previously dipped by $342.97 million to $36.53 billion within nine days. The decline was attributed to the sale of $876.26 million through the Retail Dutch Auction System to meet importer demand.
Adding to Nigeria’s financial landscape, the country’s first-ever foreign-currency domestic bond secured $900 million in subscriptions, more than the $500 million initially offered at the auctions.
Olusegun Ologunde, a forex expert, said the accretion to the external reserves and the domestic dollar bond issuance are coming at the right time when the foreign exchange market is bleeding.
He said, “The last two weeks have seen the naira struggling to maintain momentum as it shed significantly against the dollar. At one point, the dollar exchanged for between N1,950 and N2,000.
“The boost in external reserves at a time like this is a welcome development. This is, however, not the time for government to celebrate but to do more”.
Dr. Rasheed Alao, a lecturer in the Department of Economics at Adeyemi University of Education, Ondo, describes the accretion as a flash in the pan.
“I am not one of those who will celebrate this accretion. I want to see the external reserves at between $40 billion and $45 billion before I join the celebration party.
“The Minister of Finance and the Coordinating Minister of the Economy, Mr Wale Edun, should ensure that the fiscal and monetary authorities work in synergy. The era of a central bank governor doing the job meant for the fiscal authority is gone and gone for good”.
