External reserves drop by $469m in two weeks

The nation’s exchange reserves have been depleted by $469m in the past two week, the latest figures from the Central Bank of Nigeria have revealed.

After hitting $29.819bn on May 18, 2015, the country’s forex reserves commenced a descent that dragged on for more than two weeks and stood at $29.35bn on June 3, 2015.

The reserves, which was $29.481bn on April 16, 2015, had risen to its highest level of $29.819bn on May 18, but this figure could not be sustained by the apex bank, a development that analysts said was caused by the demand for dollar by importers.

It was also learnt that the instability in the prices of crude on the global oil and gas market had not helped matters as this had often rubbished efforts put in by the CBN to sustain the reserves.

It was gathered that the non-payment of petrol subsidy by the Federal Government would have naturally sustained the reserves from slipping from its $29.819bn mark, but this never happened because of the country’s over dependence on imports.

A former President of the Association of National Accountants of Nigeria, Dr. Samuel Nzekwe, told our correspondent that it was high time the government looked inwards and devised means on how to reduce the import-dependence.

He said, “One of the serious factors affecting the country’s reserves balance is the payment of subsidy to marketers. But some good percentage of subsidy has not been paid. So, the issue should be the large number of importation that takes place in Nigeria. Nigeria, as we know, is an import-dependent country.

“There are so many imports going on and I believe that this has a serious effect on the reserves. I say this because virtually everything we use in Nigeria is imported. We import food and many other products. These are areas that should be looked into because they affect the reserves.

“Also, the fall in the price of crude oil has not helped matters. The latest price is around $63 per barrel and that is still far from the over $100 per barrel, which the commodity was sold around this time last year. So, the dwindling oil price is one factor that affects the reserves, this time, negatively.”

Analysts at the FBN Capital Research, an indigenous firm, stated that the slowdown in the importation of petroleum products had assisted the rise of the reserves in the month of May.

This, they however said, was short-lived.

They said, “Data from the CBN show that official reserves increased marginally in May to $29.6bn. The slowdown in the importation of petroleum products would have helped although the principal factor has been the CBN’s market strategies to contain the depletion of reserves.

“One of such is to invite bids from authorised dealers (banks, principally) for forex on a near-daily basis and then reject the majority of them, sometimes 90 per cent of the total. Protection of reserves thereby becomes less of a challenge. The CBN could maintain such strategies for many months, assuming that the oil price does not suffer a sustained fall.

“According to one popular theory in the market, the CBN and MPC (Monetary Policy Committee) held off another adjustment to the naira exchange rate due to the elections but may move now that the transition has taken place. The personal statements of the MPC members following their latest meeting, however, reveal their satisfaction at the stability of the rate since the scrapping of the CBN’s forex auctions in mid-February.”

According to The analysts at the FBN Capital, although the demand for a product tends to ease when its cost increases, it cannot prove that this applies to the forex.

“Our impression is that demand has softened but that supply has fallen more sharply due to the CBN’s strategies.”

They stated that the spot price of the UK Brent crude oil ranged between $63 and $68 per barrel in May.

They said, “Nigeria’s total external reserves are sufficient to provide 5.8 months’ cover for merchandise imports and 4.2 months when services are included.

“The latest data, from end-December, put the CBN’s share of official reserves at 81 per cent of the total.”