Dollar Sales between 2002 and 2014 (Source: CBN)
The Minister of Finance, Ngozi Okonjo Iweala responded to criticism labeled by the former president Olusegun Obasanjo that the GEJ administration had “squandered $55billion of the country’s reserves”. The minister responded vehemently denying that the government did not squander the money. Reading both sides of the argument, you observe the issue is not that the money wasn’t depleted but how it was depleted. The Minister refused to admit to “squandering” even though she agrees the money was spent. Rather she says the money was used to “defend the naira” amidst the boom and bust cycles of oil prices which in all fairness is also the truth. However, this got us pondering and we decided to go to the CBN data base to figure out just how much has been used to defend the naira.
The Central Bank sells dollars through the Retail Dutch Auction System and Wholesale Dutch Auction System (RDAS & WDAS) respectively to banks and other authorised dealers. The forex sold is sourced via a combination of dollar inflows from the private and public sector that passed through the CBN as well as revenue funds from sale of crude oil (which is arguably the largest contributor. We therefore looked at the data from the CBN representing offers and actual sale of dollars on a weekly basis since 2002. The weekly sales is added up to get how much was sold each year between 2002 and 2014. We could not get data for years before 2002.
This is the data we obtained (see data below);
So, a total of $217.2 billion dollars ($217,273,201,021.31) has been spent in part ‘defending the naira’ since 2002. That is nearly half our GDP and an average of $16.7billion per annum. A look at the chat above also shows the increase in actual selling of our dollars began in 2008 and took off completely in 2009. It also suggest the highest spend were recorded in 2011 and 2014 respectively. In fact between 2011 and 2014 we had spent about $107.2billion via various auctions defending the naira, 49% of the total amount used in meeting official dollar demand. It is also no coincidence that those years are the Goodluck Jonathan years and off course with Okonjo Iweala as the coordinating Minister of the economy. The spending was also under the purview of the former and current CBN Governor Lamido Sanusi and Godwin Emefiele respectively.
Has all these dollar sales succeeded in stabilizing the exchange rate
CBN official exchange rate movement 2002 – 2014 (Source: CBN)
The chart immediately above again suggest no. Nigeria has depreciated against the dollar continuously no matter how much is spent defending it. It’s either we import way too much stuff or we rely too heavily on foreign portfolio investments to drive the economy. Either way, they both result in enormous dollar outflows and if not balanced with larger export proceeds will result in a depreciation of the local currency. This perhaps is what has happened. The chart also shows a steep climb between 2009 and 2014 which coincides with when the we sold the most dollars.
So, whether the money was squandered or well spent it is left for history to judge as pundits on either side of the argument will defend their stance. However, based on the data we have before us and the recent devaluation of the naira, its obvious we haven’t don’t a good job at ‘defending the naira’ despite all the money spent.
- The original article was modified and amended to provide more details and clarity to the data.
- Whilst defending the naira may not be the singular reason for dollar sales, the fact is that, if the CBN fails to sell dollars or cannot meet up official dollar demand the naira depreciates.Therefore, every time it sells dollars or forex for that matter it is in essense defending the currency from depreciating.