Last week the Central Bank of Nigeria’s data revealed that the country’s external reserves had dropped to about $26.9 billion. The last time Nigeria’s external reserves was this low was in August 2005 when it was about $26.95 billion.
The external reserves of Africa’s largest economy has been under pressure since the second half of 2014 when the price of oil began a dramatic fall that has shaken the economies of oil exporting countries. Nigeria relies on oil for nearly 85% of its government revenue and is the engine that drives the economy forward.
Due to the fall in Oil prices, Nigeria has earned fewer foreign currency from imports affecting the inflow of dollars into the CBN’s external reserves. This has also led to strict capital controls, a situation that has alienated more and more foreign investors from importing dollars into Nigeria, essentially shutting out forex inflow into the country.
While 2005 may have stark similarity to 2016 in terns of external reserves position, the difference in both economies couldn’t be wider. 2005 essentially marked the beginning of economic growth in Nigeria, propelled by the Paris Club debt deal.
Nigeria’s GDP Growth rate was about 3.4% that year and will commence a steady rise that took it to as high as 7.8% in 2010. Nigeria’s capital market swung between 23,000 and 24,000 points laying a ground work for will become the great bull rally of the mid 200o’s. Stocks on the other hand are in a state of flux in Nigeria with the all share index currently at about 25,000 close to what it was in 2005.
April inflation rate in 2005 was about 17.9 percent and will rise to as high as 28.2% in August of that year before closing at about 11.5% at the end of the year.By 2006 inflation rate was in its single digits.
Tax revenues in 2005 was about N1.7 trillion up 70% from the prior year and will more than double to N4.6 trillion by 2011. Also during the year Federal Budget was about N1.3 trillion and up 46% from the prior year.
It’s 11 years now and Nigerians are still looking for the promises made by politicians. With external reserves back to 2005 levels, it appears Nigeria has been in reverse mode failing to save for the rainy day.
