Nigeria’s Foreign Reserves Fall

Central Bank of Nigeria
Central Bank of Nigeria

Nigeria’s foreign reserves continued its downswing as it reduced further by $220 million in four days, to close at $37.242 billion, data from the Central Bank of Nigeria (CBN) showed Wednesday.

The reserves stood at $37.462 billion as at last Friday. Price of crude oil in the international market also fell by $1.63 to close at $82.40 per barrel. The development affected the naira as it fell against the dollar by N1.15 to close at N162.40/$1 Wednesday, from N161.25/$1 on Tuesday.

The local currency was however stable at the bi-weekly auction as it closed at N155.90/$1 even as the apex bank reduced its supply to $300 million, from the $400 million it sold on Monday.

The Director-General, Budget Office of the Federation (BOF), Dr. Bright Okogu, said last Tuesday that the drop in price of crude oil in the global market did not pose a threat to the 2012 budget.

He had allayed fears that in the short term, the drop in price of crude oil, occasioned largely by the Euro zone debt crisis, could have a negative impact on the implementation of the budget and put pressure on the Central Bank of Nigeria (CBN) to devalue the naira.

But, Emerging Markets Strategist, Standard Bank Plc, Mr. Samir Gadio, said yesterday that the the flattening and marginal decline in reserves was expected since the CBN had increased the size of its forex sales at the Wholesale Dutch Auction System (WDAS) as well as the regulator’s intervention at the interbank segment of the forex market to support the naira.

“This is a function of the (partial) foreign-led sell off in fixed income assets and subsequent shift in domestic confidence in the naira. The lower oil price is adding to the local positioning against the naira and should result in lower dollar revenue in coming months. In this context, forex reserves are likely to remain under pressure in the near future.”

Gadio also argued that the continued sharing of Excess Crude Account (ECA) proceeds among the three tiers of government had “left Nigeria virtually without fiscal savings.”

“Had the accumulation of fiscal savings resumed in late 2009-2010 after the global economic crisis, aggregate forex reserves would now be hovering around $60 and $70 billion.

“This would have certainly helped smoothen inter-temporal boom and bust oil cycles, improved sentiment in the forex market and ensured a more viable exchange rate framework.

“The effective launch of the Sovereign Wealth Fund (SWF) (even an imperfect version) would have certainly contributed to this turnaround and mitigated some of the fiscal excesses witnessed in recent years,” he added.