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“The largest economy in Africa is currently facing its most severe economic crisis in decades, with concerns arising as the Central Bank of Nigeria’s (CBN) debt to foreign banks might deplete approximately 40.7% of its total foreign reserves, which are currently valued at $34.1 billion.

Based on data from the CBN’s 2022 report, it is revealed that the CBN owes $500 million to Goldman Sachs, $7 billion in securities lending to JP Morgan, and an additional $6.3 billion in foreign currency forwards, which represent obligations to foreign investors. According to BusinessDay’s analysis, the FX shortages could lead to a significant reduction in Nigeria’s foreign reserves.

Experts interviewed by BusinessDay have expressed distrust in the official foreign reserves figures provided by the CBN, contributing to concerns about the central bank’s inability to clear FX backlogs. The move to float the currency in June was a much-needed reform, but some believe the current situation points to a lack of adequate monetary policy and an ambitious agenda beyond the CBN’s capacity.

Goke Adetoyinbo, an analyst at CSL Stockbrokers Limited, suggests that the CBN needs to focus on effective fiscal policy, including aggressive taxation, as the key to maintaining and defending the country’s reserves in this challenging economic environment.”
According to Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited, the recent CBN report paints a bleak picture for Nigeria’s economic future.

“We need a vigorous effort to increase revenue, but it’s not just about imposing aggressive taxes; it’s about making taxation effective,” Umaru emphasized.

He further noted, “We must focus on enhancing non-oil exports through fiscal policy to attract foreign exchange.”

Nigeria, as the largest economy in Africa, divides its external reserves into three distinct segments: the Central Bank, the Federal Government of Nigeria (FGN), and the Federation, each representing ownership of the reserves.

The Central Bank receives foreign exchange inflows from crude oil sales and other revenue sources on behalf of the government. These proceeds are acquired by the Bank, and the equivalent in Naira is credited to the Federation account.

Monthly, the revenue is shared in line with the constitution and the existing revenue-sharing formula. The portion of monetized foreign exchange belongs to the CBN, and this segment of the reserves is utilized for the Bank’s monetary policy and to uphold the Naira’s value.