Africa’s largest economy, Nigeria, has continued to suffer from a forex shortage despite the efforts of the Central Bank of Nigeria (CBN) to stabilize the depreciating exchange rates. Although the CBN’s efforts have proven to slightly improve the depreciation crisis, Nigerians are still facing an overwhelming shortage in accessing forex. One major pointer of this forex scarcity is the increasing demand for forex amidst regulations to limit supply. 

In case you missed it 
Almost 10 months ago, CBN stopped the sale of forex to Bureau de Change operators. Fast forward to March 2022, commercial banks in Nigeria reduced the spending limits on naira debit cards from $100 to $20 monthly. CBN hoped that both directives would reduce the ease with which forex leaves the economy. 

State of play 

  • The forex scarcity has increased the difficulty with which Nigerian students studying abroad can access funds to pay tuition fees and for their upkeep. Commercial banks now take up to six weeks to meet forex demands from Form A. 
  • The rise in oil prices in the global market as a result of the Russia-Ukraine war has also not favored Nigeria, an oil producing country, because of the limited production of the product in the country and the continuous payment of subsidies by the federal government. Nigeria spends most of its oil revenue on the importation of Petroleum Motor Spirit (PMS) and other refined products, as the country lacks local refining abilities. 
  • Nigeria has failed to generate forex from exporting non-oil products even though the country is rich in raw materials. The country’s dependence on crude oil, despite its depreciating production capacity in recent years, is responsible for the country’s reduced forex revenue. Crude oil export represents 79.16% of the N5.62 trillion generated in Q1 2022. 

What to watch 
Experts have projected Nigeria’s forex reserve to deplete to $35 billion from $39.98 billion (January 2022) by the end of 2022 if the demand keeps outweighing the supply. 

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