Naira Holds at ₦1,530/$: Can CBN’s Forex Strategy Survive Without an Oil Boom?

Nigeria’s exchange rate has remained relatively stable at around ₦1,530 per US dollar in recent weeks, signaling that the Central Bank of Nigeria (CBN) is actively defending the naira. However, beneath this apparent stability lies a growing concern: the sustainability of this strategy in the face of dwindling oil revenues. With crude oil production stagnating at 1.67 million barrels per day, below Nigeria's OPEC quota of 1.8 million barrels, and the Nigerian National Petroleum Company (NNPC) retaining 30% of oil revenues under the Petroleum Industry Act (PIA), the CBN's ability to maintain forex stability is under serious scrutiny.

What is the Critical Link Between Oil and Forex Stability ?

Traditionally, the sources of foreign exchange earnings in Nigeria have been very much reliant on the export of crude oil. Oil was at its highest point, providing more than 90% of the FX earnings in the country. Although the diversification attempts have brought this figure down to about 60 %, oil still forms the lifeblood of the Nigerian forex reserves. The present production rate of 1.67 million barrels per day is not only short of the OPEC quota of Nigeria but also way much lower than the 2.5 million barrels per day that the country had produced a decade ago. This deficit is equivalent to billions of dollars in revenue, and this directly affects the ability of the CBN to defend the naira.

The consequences are drastic. Lower oil production implies less dollar inflow into the official market and therefore the CBN has to depend on foreign borrowings and its diminishing reserves to cover forex demand. With the current foreign reserves of Nigeria being pegged at $33 billion, the reserves are always under threat due to debt repayment and speculative demand. Unless the production of crude is substantially raised, the present forex policy can be unsustainable in the long term.

Are the Forex Measures of CBN a Short-term Solution or a Long-term Solution?

To curb these challenges, the CBN has put in place various measures with the aim of stabilizing the naira. These are the harmonization of the exchange rates, direct dollar sales to the operators of the Bureau de Change, and the incentives for diaspora remittances. Although these policies have alleviated the short-term situation, their effectiveness in the long term is questionable.

The disparity between the parallel market rates and the official ones is one of the problems that has persisted. Nonetheless, the naira still sells at a premium in the black market where it is selling at an average of 1,600 naira per dollar despite the efforts of the CBN. The gap indicates that there is still a lack of trust in the official forex regime and indicates the shortcomings of the interventions of the CBN without a consistent flow of dollars.

Expert Perspectives: A Divided Outlook

The debate over Nigeria's forex strategy has produced divergent views among economists and policymakers. Optimists believe that the CBN's reforms, coupled with initiatives like the Dangote Refinery, will gradually reduce dollar demand and attract foreign investment. They also point to diaspora remittances, which exceed $20 billion annually, as a reliable supplementary source of forex.

Pessimists, on the other hand, warn that without a substantial increase in oil production, Nigeria may face another round of naira devaluation. They argue that the NNPC's revenue retention policy undermines the CBN's efforts and that reliance on temporary measures is a risky gamble. Some even speculate that Nigeria may eventually seek an IMF bailout if oil prices decline or production fails to rebound.

In conclusion, the naira's current stability is a fragile achievement, sustained more by CBN interventions than by organic dollar inflows. Without a resurgence in oil production or a breakthrough in non-oil exports, Nigeria's forex strategy may soon face its toughest test yet. The choices made in the coming months, whether to amend fiscal policies, ramp up production, or intensify diversification efforts, will determine whether the naira remains steady or succumbs to renewed pressure.

The question lingers: Can Nigeria's forex strategy endure without an oil boom, or is the present stability merely the calm before another storm?