Nigeria’s external reserves depleted by $2.9 billion between August and September 2019. This is reflected in the data obtained from the website of the Central Bank of Nigeria (CBN).
According to the CBN data, Nigeria’s foreign reserves stood at $45 billion on the 25th of July 2019, meanwhile, it has recorded free fall in recent weeks as it stood at $42.1 billion as of 25th September 2019.
The Number: Nigeria’s external reserves have been on the free-fall since July 9th, when the gross reserves last stood at $45.1 billion. The latest report shows the reserves currently stand at a 10 months low
- In an earlier report by Nairametrics, it was disclosed that Nigeria’s foreign reserves depleted by $1 billion in August 2019. As at the end of August 2019, the reserves stood at $44 billion.
- A closer look shows that on the 3rd of September, the external reserves stood at $43 billion while it dropped to $42.1 billion as of September 25th, 2019. This suggests in less than a month, the reserves further went down by another $1 billion.
- Further analysis shows that the last time Nigeria’s external reserves hit the current $42 billion thresholds was November 30th, 2018.
Defending the Naira: While the fluctuations in oil prices have been a major concern to policymakers in recent times, the major factor that has triggered the free fall is CBN frequent intervention in the foreign exchange windows.
- As part of its continued intervention in the foreign exchange market, the CBN continued to inject funds into the FOREX markets.
- The CBN disclosed in its July monthly economic report that the bank injected a cumulative sum of $2.63 billion to further sustain relative stability in the FOREX.
- The breakdown of the Central Bank’s intervention in the FX market in the month of July 2019 shows that currency sales to the Bureau De Change (BDC) rose by 3.8% and estimated at US$1.08 billion. In essence, injection in BDC FX window scooped the biggest share in the month.
- Also, the external reserves position could finance 7 months of import of goods and services, and 10 months of goods only, using the import figure for the second quarter of 2019.
- Experts have claimed the intervention strategy of the CBN in the multiple exchange window is not sustainable, as the country’s reserves are being used to defend the naira from devaluation.
Reserves Composition: Nigeria’s external reserves are composed of six (6) different currencies and these include the US dollars, Euros, Pounds Sterling, Japanese Yen, Swiss Francs and Yuan (Renminbi).
Data obtained from the CBN quarterly bulletin for the first quarter of 2019 shows that the US dollar covered 90% of Nigeria’s total external reserves. Others include the Chinese Yuan (5%) while other currencies constitute 5%.
In the meantime, Nigeria’s foreign reserves may further deplete. First, Nigeria is about to part with the sum of $200 million ordered by the United Kingdom Court to be paid pending its appeal against the $9.6 billion awarded to a gas firm involved in a failed gas deal.
- While the case is still pending, there are concerns that in the event of Nigeria losing, the country’s external reserves may be seriously hit.
- On the side, while the reserves are depleting, the CBN has continued to introduce several policy measures in a bid to protect the country’s reserves.
- Examples of the policy moves include the 43 banned FOREX restricted items and the CBN has equally vowed to restrict more items.