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The country’s foreign reserves dropped by $4.45 billion from the $43.07 billion recorded in January 2019 to $38.61 billion in December 2019, a Central Bank of Nigeria’s data revealed.

The data stated that Nigeria’s foreign reserves has kept a downward trend since the June 2019, when it dropped from the $45 billion mark in July, to reach the 40 billion mark. It slides further pass the $40 billion mark later in November and currently stand at $38.61 billion.

Meanwhile, the Central Bank recently disclosed that Nigeria’s dependence on crude oil for more than 60% of fiscal revenue and over 90% of forex earnings implied that the country’s revenue and forex supply was exposed to shocks from the international oil market.

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It added that these shocks were transmitted to the Nigerian economy as manufacturers and traders who required forex for purchase of necessary raw materials were faced with deteriorating supplies.

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With the drop in forex inflows, the exchange rate at the parallel market rose from about N200/$ in August 2015 to N525/$ in February 2017. Inflation also rose from 9.6 per cent in January 2016 to over 18.7% in January 2017.

“Our external reserves fell from about $31bn in April 2015 to $23bn in October 2016, and activities in the industrial sector witnessed a lull as manufacturers struggled to get access to key inputs needed in the production process,” said Godwin Emefiele, CBN Governor.

[READ MORE:Nigeria’s foreign reserves shed $1 billion, biggest fall in 17 months)

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Analysts have stated that oil is no longer the biggest driver of CBN reserve inflows, adding that in 2018, oil accounted for 26% of CBN USD inflows (Q119:23%) vs over 90% before 2015. CBN purchases at the spot and swap market are now a big driver half of non-oil FX flows.

However, in a bid to manage the country’s foreign reserves and stabilize the Naira, the CBN introduced a demand management approach to conserve the country’s reserves and support domestic production of certain goods in Nigeria through the introduction of the Investment & Export window (I&E).

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“The introduction of the I&E window, along with improvement in domestic production of goods, has helped shore up our external reserves. Transactions have reached over $55bn since the inception of the window and our foreign exchange reserves has risen to $42bn in September 2019 from $23bn in October 2019,”  he added.

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Also, the CBN Governor, Godwin Emefiele had recently mentioned that if external reserves drop to between $30 billion and $25 billion, and oil price falls between $50 – $45, the apex bank could consider moving on to float the exchange rate and devalue the naira.

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