Forex Scarcity in Nigeria: Dollar Inflows Drop, Threatening Second Quarter of 2023. The Nigerian economy is grappling with a severe shortage of foreign exchange as dollar inflows have significantly declined in recent months. According to the Central Bank of Nigeria’s quarterly bulletin for the fourth quarter of 2022, this scarcity is primarily attributed to various factors, including the global economic slowdown, the war in Ukraine, and the lingering effects of the COVID-19 pandemic. The shortage of forex has led to a sharp rise in the price of the dollar, affecting businesses and individuals across official and unofficial markets.
Declining Dollar Inflows
Dollar inflows into Nigeria have experienced a notable decline in recent months, posing a challenge for the country’s economy. Despite efforts by the Central Bank of Nigeria (CBN) to address the issue by selling dollars to commercial banks and authorized dealers, the supply is still falling short of demand. This mismatch has contributed to a rise in the price of the dollar, exacerbating the forex scarcity.
Key Indicators of Inflow Decline
The CBN’s data reveals that forex inflows in 2022 amounted to $72.3 billion, marking a 23% decrease from the previous year’s $94.3 billion and a significant decline of 37.4% compared to the $115.6 billion recorded in 2020. Foreign Direct Investment (FDI) in Nigeria also suffered, experiencing a 33% decline to $468.1 million in 2022 from $698.87 million in 2021. Foreign portfolio investment fell by 27.9% to $2.44 billion in the same period.
The drop in dollar inflows has had a significant impact on the CBN’s supply of dollars in the foreign exchange market. In 2022, the CBN supplied $15.27 billion to the economy through SMEs, the I&E window, and Invisibles, marking a decline of 15.3% compared to 2021’s $18.03 billion and a substantial 31.1% drop from the $22.16 billion supplied in 2020.
Implications on Nigeria’s Economy
The shortage of foreign exchange has had severe repercussions for the Nigerian economy. Businesses are struggling to import raw materials and equipment, resulting in higher prices and reduced production. Nigerians are finding it increasingly difficult to travel abroad and send money to relatives overseas. The cost of living is rising as businesses pass on the higher costs of imports to consumers. Additionally, the economy is experiencing slower growth as businesses are unable to invest and expand due to the forex scarcity.
The declining dollar inflows in Nigeria are causing a severe shortage of foreign exchange, impacting businesses, individuals, and the overall economy. Despite the efforts of the Central Bank of Nigeria, the situation remains challenging, with the supply of dollars unable to meet the growing demand. As a result, businesses are facing higher costs, production is declining, and Nigerians are encountering difficulties in accessing forex for various purposes. Urgent measures are required to address this forex scarcity and restore stability to Nigeria’s economy.
Source: Editorial Times