Forex scarcity worsens as inflow fell by $2.43bn to $9.72bn in April

Nigeria’s lingering foreign exchange scarcity continued in April as inflow declined by 25 per cent to $9.72 per cent in April, from the $12.15 billion recorded in March, a Central Bank of Nigeria (CBN has revealed).

The apex bank, in its monthly economic report for April, attributed the development to the weak global demand caused by the COVID-19 pandemic.

The decline in inflows, relative to the level in March, was also attributed to the lower receipts from oil sources, which fell sharply by 15.5 per cent as a result of the plunge in average crude oil price from $32.30 per barrel at the onset of the pandemic in March, to $14.30 per barrel in April.

The slump in crude oil price was induced by the weak global demand on account of the lockdown of most economies following the continued spread of COVID-19.

According to the report, inflow through autonomous sources, particularly invisible purchases, declined by 57.3 per cent to $3.78 billion, relative to the preceding month, but higher than the 44.1 per cent increase in inflows through the CBN, which stood at $5.94 billion in April.

It explained that following the lockdown of the Nigerian economy, aggregate foreign exchange outflows through the economy decreased by 55.1 per cent to $3.29 billion in April.

“Aggregate outflow of foreign exchange from CBN fell by 55.1 per cent to $3.29 billion in April 2020, below the level in the preceding month. The development was driven, largely, by the 69.3 per cent decline in interbank utilisation, reflecting a substantial decline in I&E funding and non-intervention in the BDC segment in April 2020.

“Similarly, outflow through autonomous sources, mainly imports and invisibles declined by 62.2 per cent to $0.13 billion in April 2020, below the level in March 2020.

“Consequently, a net inflow of $6.43 billion was recorded through the economy in April 2020, compared with the net inflow of $5.63 billion in the preceding month,” it added.

It showed that the total amount of forex sold by the bank to authorised dealers in the month under review decreased by 82.2 per cent to $0.84 billion in April, from $4.70 billion in March, due to the low demand for forex as a result of the closure of factories and businesses.

Also, forex sales at I&E window declined by 78.5 per cent to $0.78 billion relative to the preceding month’s level of $3.61 billion. However, interbank sales rose significantly by 2,900 per cent to $0.06 billion, above the $0.002 billion sales in March.

The report stated that the development was to ensure adequate foreign exchange liquidity in the market.

Sales to BDCs were suspended on a request by the BDC operators, effective March 27 because of the COVID-19 pandemic.
The report said: “The monthly average turnover at the I&E FX market, which represented 70 to 80 per cent of the total transactions in the foreign exchange market, had been on the decline persistently since February 2020, following the lull in economic activities, due to the COVID-19 pandemic.

“The monthly average turnover at the I&E decreased notably by 87.0 per cent, from $0.34 billion in March 2020 to $0.04 billion in April 2020, making it a second consecutive monthly decrease since February 2020.

“Nigeria’s external account position exhibited persistent current account deficit and emerging capital reversal. The external account posted a higher deficit of $4.39 billion equivalent to 3.8 per cent of GDP in 2020 first quarter, relative to $2.62 billion (2.0 per cent of GDP) in the fourth quarter of 2019.

“Because of the significantly lower deficits recorded in the goods, services and income accounts, the deficit in the current account narrowed to $4.88 billion in 2020 Q1 (4.3 per cent of GDP) from $6.95 billion (5.3 per cent of GDP) in 2019 Q4.

“Portfolio investment witnessed a further capital reversal of $8.34 billion in 2020 Q1, compared with $6.04 billion in 2019Q4 due to increased sell-off of both equity and debt securities by foreign investors.

“Specifically, equity securities and money market instruments worth $1.41 billion and $6.37 billion, respectively, were liquidated in 2020 Q1. Foreign Direct Investment (FDI) decreased further to $0.43 billion in 2020 Q1 from $0.50 billion in 2019 Q4 driven largely by the decline in reinvested earnings and a fragile global economy.”