The Central Bank of Nigeria (CBN) has attributed the decline in reserves to concerns in emerging markets. Spokesperson of the apex bank Isaac Okoroafor disclosed this on the sidelines of the Abuja International Trade Fair. According to him, the country’s foreign reserves are robust at $44 billion and can fund import requirements.
Data from the CBN website shows reserves have dropped to $44 billion as at the 2nd of October 2018 from a high of $47.8 billion in May.
The real reasons
While the CBN’s explanation’s are coherent, the bank may have conveniently failed to mention that it has used the reserves to keep the exchange rate stable, in the midst of a melt down in other emerging markets.
A trade war with the United States has led to the Turkish Lira depreciating against the dollar. The South African rand has also declined against the dollar as the country’s economy has slipped into recession.
From currency market, the contagion has also moved to equities markets, including the Nigerian Stock Exchange (NSE). The All Share Index declined by 5.97% in September, and is down year to date 15.13%
The Naira has however remained steady at N360 to the dollar defying emerging market contagion, and foreign portfolio investors exiting the NSE, has also put pressure on the reserves.
The crude oil party
The bank has been able to do this due to surging crude oil prices and steady production volumes. Crude oil started the year at the $40 mark and is forecast to hit $100 before the end of the year. The rally has been driven in part by the United States sanctions against Iran and concerns relating to a trade war between the United States and China.