Nigeria’s Foreign Reserves Drop By $2.2bn In 30 Days

imageThe nation’s external reserves otherwise known as foreign exchange reserves tumbled by $2.23billion to settle at $30.07 billion by March 19th against $32.30billion a month ago.
The Central Bank of Nigeria’s reserves movement shows the declining trend which signifies about 6.9 percent dropped with the period.
The reverse also declined by about $8.14 billion equivalent to 21 percent drop compared to same period last year.
Recently the CBN took some measures to curb the frequent drop in the reserves. The measures include the suspension of funding non-essential imports commodities with the dollars.
The continued pressure on the nation’s foreign exchange reserves led to the bank to suspend the Retail Dutch Auction System and Wholesale Dutch Auction System RDAS/WDAS Foreign Exchange Window where impoters are using to receive dollars from CBN.
An economic analyst and Chief Executive Officer of APT Securities and Funds Limited Mr. Kasimu Garba Kurfi said the declining of reserves is obvious because almost all the supply side indices are negative for now.
He said with crude oil at around $50/barrel it signifies about 45 percent drop in oil revenue. At the capital market, the investors are no longer investing but taking their profits from the equity market which they usually convert the naira value into hard currencies which are take out of the country at the same time the Foreign Direct Investment is not flowing as expected due to the electoral tension.
On the demand side, Kurfi politicians have mounted pressure on dollarization of the economy by ignoring the local currency and prepared the hard currencies. He said about 19 governors are no longer coming back and they are busy converting all their resources to hard currencies in order to take them out of the country.
When contacted yesterday, the Director, Communications, CBN, Ibrahim Mu’azu said the frequent drop in reserves despite the import restriction he said “broadly, is an issue of demand pressure against weak/declining inflows supply source.”
“Import restrictions are usually targeted on non-essential items or those that could be produced/ manufactured locally to conserve external reserves and grow the domestic economy. However, think of a scenario, if you are able to reduce the current demand by 25% but the inflow in the same period declined by 45% or 50%, the net accretion is negative and the reserve level will drop notwithstanding the reduction of imports.
Ibrahim said similarly on the demand side, we have the importation of PMS and other petroleum products, machines/plant/equipment and inputs for productive purposes, reversal of foreign capital flows for multiple reasons, remittances in general (education, health, divided etc.) would remain sources of pressure in the medium term.
Much of the on-going effort is to establish and moderate the effective demand for forex; eliminate spurious/speculative demands to stabilize the exchange rate and sustain investors’ confidence; encourage domestic output to substitute imports and improve on exports as well as repatriation of the export proceeds etc. etc.
He said the crash in oil/ commodity prices, diversification to non-oil exports and non-repatriation of export proceeds which are critical on the supply side, will remain issues for some time to come.

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