External reserves dip to $40.3bn, lowest in 21 months
The nation’s foreign reserves, which is monitored by the Central Bank of Nigeria (CBN) stood at $40.3bn as at October 18, 2019, lowest figure in the last 21 months.
Latest figure obtained from the apex bank showed that the external reserves declined from $45 billion in July to $40.3 billion in October 18 2019, representing a drop of $5 billion in less than four months.
While the decline in the country’s foreign reserves have coincided with recent fluctuations in global oil prices, the depletion in reserves has more to do with CBN intervention in the foreign exchange market.
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The central bank in its monthly economic report for August 2019 stated that the decrease in foreign reserves was due, to increased foreign exchange market interventions and external debt service payments, as well as, direct payments.
Our checks, however, revealed that the foreign exchange buffer in nine months has depreciated by $1.26billion from $43.12 billion it opened to $41.85billion as on September 30, 2019.
Further findings showed that the nation’s foreign reserves reached the $45billion mark in June when the global oil prices was trading around $70-$61 per barrel.
Analysts attributed the decline in foreign reserves to unrelenting naira assets sell-offs by offshore investors.
Cordros Capital had said, “Despite the continuous depletion of reserves amidst sell-offs by off-shore investors, our estimate suggests no naira devaluation in 2019, as we believe the CBN has more than enough ammunition to sustain its naira defence. Hence, we expect the naira to remain resilient in the short to medium-term.”
Since the introduction of the Investors and Exporters’ (I& E) Foreign exchange window, the CBN has increasingly intervened in the foreign exchange market as an active buyer and seller of currencies.
For instance, the half-year report recently released by the CBN’s Financial Markets Department showed that for half-year 2019 (January – June), the apex bank made available a whopping sum of $8.28 billion to authorised dealers in the foreign exchange market.
The foreign sector performance of the Nigerian economy has continued to be on the low as oil prices plummeted while the country’s non-oil export slowed. This implies that the use of the country’s reserves to either defend the naira or service the debt comes at a great cost.
According to the CBN report for August 2019, the decline in international prices of crude oil affected the inflow of foreign exchange into the country. Meanwhile, this has not stopped outflow for an import-dependent economy like Nigeria.
In August, for instance, foreign exchange inflow through the CBN was put at $4.8 billion while the outflow was $6.14 billion. This puts the net outflow at $1.24 billion.
