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Economy & Politics

What constitutes Nigeria’s external reserves?

Anytime we hear about foreign reserves, we just learn about the movement in the reserves, whether upwards or downwards. But there is more to the concept. Let’s show you.

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Anytime we hear about foreign reserves, we just learn about the movement in the reserves, whether upwards or downwards. Most people do not understand the composition of a country’s foreign reserves and just assume it is made up of hard cash stored somewhere.

According to the Central Bank of Nigeria, foreign reserves are assets held on reserve by a monetary authority in foreign currencies. These reserves are used to back up liabilities and influence monetary policies. They include foreign banknotes, deposits, bonds, treasury bills, and other government securities.

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The International Monetary Fund (IMF) states that international reserves are those external assets that are readily available to and are controlled by a country’s monetary authorities. They comprise foreign currencies, other assets denominated in foreign currencies, gold reserves, special drawing rights (SDRs) and IMF reserve positions.

READ MORE: Nigeria’s External Reserves drop by $2.9 billion, hit 10-month low

Why does a country have foreign reserves?

These reserves may be used for direct financing of international payments imbalances or for indirect regulation of the magnitude of such imbalances via intervention in foreign exchange markets in order to affect the exchange rate of the country’s currency.

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In essence, foreign reserves give the government the confidence and resilience to withstand shocks if a country’s currency crashes or devalues. 

What are Nigeria’s external reserves composed of?

The CBN Act of 2007 provides that the apex bank shall maintain a reserve of external assets consisting of all or any of the following:

  • Old coin or bullion;
  • Balance at banks outside Nigeria where the currency is freely convertible and in such currency, notes, coins, money at call, and any bill of exchange bearing at least two valid and authorized signatures and having maturity not exceeding ninety days; exclusive of days of grace;
  • Treasury bills (with a maturity period not exceeding one year) issued by the government of any country outside Nigeria whose currency is freely convertible;
  • Securities of, or guarantees by, a government of any country outside Nigeria whose currency is freely convertible, provided such securities shall mature in a period not exceeding ten years from the date of acquisition and are of such investment grade as may be determined by the Board from time to time;
  • Securities of, or guarantees by international financial institutions if such securities are expressed in currency freely convertible, in the form of investment-grade assets as may be determined by the Board and maturity of the securities shall not exceed five years;
  • Nigeria’s Gold Tranche in the International Monetary Fund (IMF);
  • Allocation of Special Drawing Rights (SDR) made to Nigeria by the IMF; and
  • Investment by way of loans or debenture in an investment bank or development financial institutions within or outside Nigeria for a maximum period of five years.

READ ALSO: IMF ranks Nigeria’s sovereign wealth fund second-worst in the world

The conditions for such investment are that:

  • The amount invested should not more than 5% of the total reserves;
  • The reserve level at the time should be able to sustain twenty-four months of import; and
  • The loan or debenture is in foreign currency.

Nigeria’s external reserves as of the time of publishing this article stood at $34.673 billion.

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Economy & Politics

Output cut: Nigeria leads in OPEC non-compliance with 50 unsold cargoes of crude

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

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As opinions continue to differ on whether OPEC will extend its current oil output cut beyond June, available information has shown that not all members of the oil cartel complied fully with their agreed quotas for the month of May. This is despite the fact that the oil output by OPEC member countries reached its lowest in almost 20 years.

Available data from oilprice.com showed that OPEC members cut their output by 5.91 million barrels per day from the April level, producing 24.77 million barrels per day. This figure also showed a 4.48 million barrel per day of the agreed output cut, thereby representing a 74% compliance level.

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Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Iraq was able to achieve just 38% compliance of its agreed output cut for the month of May, while Nigeria, which achieved a much lower compliance of the agreed output cut, recorded 19% compliance of what was agreed. Saudi Arabia showed the highest compliance, recording 96% of the agreed output cut.

Some have attributed the noncompliance of some members of OPEC to the agreed output cut, to the contractual obligations and commitment to buyers, given the short timeframe between when the agreement for the output cut was made and its implementation.

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Meanwhile oil exports from Angola and Congo remained steady at high prices on Friday, while Nigerian oil fared lower amid huge inventory of unsold cargoes.

Nigeria continues to face some difficulty in the oil market, primarily due to sluggish demand from Europe; it has around 50 unsold cargoes of crude oil yet to be sold for the months of June and July.

Meanwhile, India has become one of the few buyers for the Nigerian oil. Indian oil firms bought about 5-6 million barrels of Nigerian crude oil last week and has bought about 2 million barrels as at Thursday this week.

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Business News

President Muhammadu Buhari reshuffles NNPC’s board of directors

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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President Muhammadu Buhari to address Nigerians on Monday, receives update and recommendations from PTF

President Muhammadu Buhari has approved the reconstitution of the board of the Nigerian National Petroleum Corporation (NNPC) after the expiration of the tenure of the current board.

The newly constituted board members are expected to serve for a tenure of three years, effective immediately. They will take over from the last board, whose 3-year tenure officially ended in 2019. Information about this development is contained in a State House press release that was published on the official twitter handle of the Nigerian Presidency on Saturday morning.

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The newly constituted NNPC board is made up of six members from each of the geo-political zones in the country. The members include the following individuals:

  • Mallam Mohammed Lawal, representing the North West
  • Dr Tajudeen Umar from North East
  • Adamu Mahmood  Attah from North Central
  • Senator Magnus Abe from the South-South
  • Dr Stephen Dike from the South East, and
  • Chief Pius Akinyelure from the South West geo-political

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Of the six members, three are returning members on the board – Chief Pius Akinyelure, Mallam Mohammed Lawal, and Dr Tajudeen Umar from North East.

Note that the constitution of the new board is considered a welcome development, as it balances the representation of the six geo-political zones on the board. The previous constitution of the board was faulted for not being “balanced”.

READ ALSO: Full text of President Muhammadu Buhari’s 58th Independence day broadcast

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Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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Coronavirus

CBN extends timeframe for submission of banks’ audited financial statements

“Therefore, the deadline for submission has been extended by three months. For the avoidance of doubt, all Other Financial Institutions are required to submit the 2019 Audited Financial Statements on or before July 31, 2020.”

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In recognition of the effect of the economic lockdown across major cities in the country due to the Coronavirus pandemic, the Central Bank of Nigeria (CBN), has announced the extension of the timeframe for the submission of 2019 audited financial statements of banks and other financial institutions (OFIs).

This was disclosed in a letter to OFIs that was signed by CBN’s Director of Other Financial Institutions Supervision Department, Nkiru Asiegbu, as seen by Nairametrics.

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READ ALSO: CBN announces new policy measures, reduces interest rates for financial institutions

In the letter, which was dated April 30th, 2020, the CBN extended the timeframe for submission of its audited financial statement by 3 months to July 31st, 2020, as against the initial timeframe of April 31st, 2020.

The decision by the apex bank is in recognition of the fact that the lockdown of most of the cities in the country and movement restrictions have seriously affected the operations of the external auditors and all other financial institutions across the country. Part of the letter said:

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Pursuant to the provisions of section 27 (1) (a) of BOFIA, all the banks and OFIs are required to forward the audited financial statements of each financial year to the CBN for approval before the end of the fourth month following the year to which they relate. Accordingly, the 2019 Audited Financial Statements should have reached the CBN on or before April 30, 2020.

“However, we have observed that the lockdown of most cities in the country due to the coronavirus pandemic has restricted the engagement of External Auditors and the daily operations of all OFIs across the country.

“Therefore, the deadline for submission has been extended by three months. For the avoidance of doubt, all Other Financial Institutions are required to submit the 2019 Audited Financial Statements on or before July 31, 2020.”

The CBN also threatened to sanction defaulters as they would monitor the compliance to the extended date.

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