Despite the restored confidence in the economy, Nigeria’s external reserves continued its steady decline, dropping by 13.7 per cent to $29.77 billion since the beginning of the year.
At current level, the reserves has hit its lowest point in the past 10 years. LEADERSHIP checks reveal that the external reserves has not been this low since 2005 when it closed at $28.6 billion. After this, it climbed rapidly as oil price boomed reaching the high of $62.4 billion in July 2008.
ngozi_okonjo_iweala_3The reserves has come under intense pressure following the persistent decline in oil prices in the international market.
The reserves, which stood at $34.49 billion at the beginning of the year, dropped to $29.77 billion by April 4, 2015, the latest figures made available by the Central Bank of Nigeria (CBN) have shown.
Last year, the country’s external reserves shed an accumulated 17.5 per cent within 12 months. Reserves which was $43.5 billion at the beginning of 2014 dropped to $35.88 billion by the end of last year.
Financial experts have described the falling reserves as not too good for the country, particularly as a heavily import dependent country
According to an analyst with Calyst Securities Ltd, Mr Tunde Oyediran, decline in the external reserve is not a good index for an economy that is import dependent.
He said, “Since Nigeria is an import dependent country, this will make it difficult to finance our imported goods as payment will be worse off. At the end of the day we will resort to more borrowing to finance more of our import,” adding that this will lead to further devaluation of naira.
Oyediran called on the new administration to focus on export promoting strategy, work on the refineries so that the country would not be importing its export products back into the country.
“The new administration should encourage export and discourage import to enhance the external reserve.”
Speaking on the issue, the director-general of Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, said, “Weak foreign external reserves will create pressure on the naira external rate and will further create problem in the naira at the foreign exchange market.”
He explained that this will also create or generate speculative activities in the foreign exchange market, and said it could affect the confidence of international investors and the nation’s trading partner in Africa.
Muda urged the new government to evolve policies that will boost the external reserve: “They should see how we can refine our crude oil to reduce our dependence on importation as crude oil exerts the biggest pressure on the foreign exchange market and, invariable, on our foreign reserve.”
To curb the declining level of the reserves, the CBN had cancelled its twice weekly retail Dutch auction as part of measures to curtail the excesses in the foreign exchange market and reduce pressure on the naira.
The naira, which had traded as high as N250 at the parallel market, regained strength following increasing confidence after the success of the general elections. At the interbank, the naira remained stable at N197 to the dollar while it witnessed a massive appreciation at the black market, selling at N198 go the dollar compared to N220 a week ago.
Interbank lending rates also trended downwards since Monday with overnight rate dropping to 13.6683 per cent, while one month and six-month rates closed lower at 15.5486 and 17.5973 per cent.
The CBN had been using the reserves to support the ailing naira, which has been hammered by the falling global oil prices and political risks.
Economic and financial analysts linked the huge drop in the stock of external reserves to political spending and falling oil prices which have put pressure on the local currency, and speculative demand for the dollar by foreign exchange dealers.
Analyst and Head, Investment and Research, Afrinvest West Africa Ltd, an investment advisory firm, Mr Ebo Ayodeji, said, “The recent huge drop in the reserves is as a result of the continuous demand for the greenback. This has been fuelled by political spending and the recent round tripping carried out by foreign exchange dealers before the closure of the Retail Dutch Auction System forex market by the CBN; there was huge artificial demand for the dollar during the period.”
Ebo, however, expects the rate at which the stock of external reserves is being depleted by the central bank to reduce in the coming weeks as the gap between the dollar rate at the interbank and parallel markets reduces.
“As time goes on, the gap between the interbank and parallel market will not be significant enough to create artificial demand,” he added.
Analysts at BGL Plc had in January said the country’s external reserves might drop below $30 billion by the end of the second quarter of this year if the oil price fell below $65 per barrel.
Leadership News – Culled from http://leadership.ng/news/423540/external-reserves-lowest-in-10-years