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Macro-Economic News

Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserve position is now $9 billion years to date and down from its peak of $45.17 billion achieved.

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external reserves, After loosing $520 million in two weeks, Nigeria's external reserves rise again, Foreign reserves, Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserve fell by $261 million in 15 days as the central bank marginally increased sale of forex in the I&E window.

Data from the website of the apex bank reveals Nigeria’s external reserve is now $36.3 billion as at June 18th 2020. Nairametrics tracks the external reserve position on a weekly basis.

The last time Nairametrics checked the external reserve position on June 3rd the central bank has $36.57 billion. The drop is in line with expectations considering the limited dollar earnings due to stiff OPEC cuts and low crude oil prices.

Nigeria’s external reserve has declined for a second consecutive week since June 3, 2020, when it stood at $36.577 billion. This represents a decline of $261 million or 0.71% in 15 days when compared to the $36.316 billion as of June 18, 2020.

READ ALSO: Will Monetary policy Committee (MPC) alter rates this week?

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Also, note that Nigeria’s external reserve position is now down $9 billion years to date and down from its peak of $45.17 billion achieved.

The naira has been under pressure against other major currencies, particularly the dollar, since the fall in oil prices and the outbreak of the COVID-19 pandemic. This has triggered a wave of currency speculators who believe the devaluation which occurred in March should be have been more. The CBN devalued it’s the official exchange rate in March from N307/$1 reacting to the fall in crude oil prices. However, Brent crude oil prices have risen since then to over $43 per barrel but yet to hit pre-crash level prices. Speculators are betting that the government may devalue further if they are to fund the government’s huge revenue gap.

READ MORE: Naira falls against the dollar across forex markets as liquidity drops by 43%

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However,  dollar shortages, which is impacting on the external reserve, continues to be on the burner and widening the exchange rate at the I&E window and the black market. Several reports monitored by Nairametrics suggest the accumulated demand for foreign exchange in the market especially by importers and foreign investors who want to repatriate their funds could be between $1.5–$5 billion as supply shortages persist. The rise in dollar demand and the contrasting fall in supply has given rise for calls for another round of devaluation by CBN.

Nairametrics had reported that the Federal Government through the Economic Sustainability Committee had proposed the unification of the exchange rate to maximize naira returns to FAAC from the foreign exchange inflows. The policy measures by the committee is also to help manage the exchange rate in a sustainable manner.

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As part of the measure to improve the foreign exchange supply to CBN, the committee had recommended the sales of foreign exchange supply directly to the apex bank by oil companies and oil service companies instead of NNPC.

The naira depreciated to N386.50 to a dollar at the Investors and Exporters (I&E) window last week Friday. It also depreciated to N455 to a dollar at the parallel market otherwise known as the black market.

 

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Economy & Politics

FAAC disburses N696.2 billion in July 2020, as Lagos State parts with N1.46 billion  

The sum of N696.18 billion to the Federal, State, and Local governments in July 2020 from the FAAC account.

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States lose N35.51 billion to bail-out , FAAC disburses N650.8 billion as South-South states receive highest share

The Federation Account Allocation Committee (FAAC), disbursed the sum of N696.18 billion to the Federal, State, and Local governments in July 2020, from the revenue generated in the month of June 2020. This was stated in the latest FAAC report, released by the National Bureau of Statistics (NBS). 

According to the report, the monthly disbursement increased by 27.2% compared to N547.3 billion shared in June, and 14.8% increase compared to N606.2 billion disbursed in May 2020. 

READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020 

Checks by Nairametrics research, shows that a total of N4.58 trillion has been shared to the three tiers of government, between January and July 2020. Highest disbursement was recorded in April (N780.9 billion), followed by N716.3 billion in January 2020. 

Meanwhile, Lagos State – the economic hub of Nigeria, parted with N1.46 billion as external debt deductions in the month, indicating a total of N9.74 billion deductions between January and July 2020. 

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Explore the Nairametrics Research Website for Economic and Financial Data

Breakdown 

  • The amount disbursed in July comprised of N474.53 billion from the Statutory Account, N128.83 billion from Valued Added Tax (VAT), N42.83 billion from Exchange Gain Differences, and Distribution of N50 billion from Non-Oil Revenue for the Month. 
  • Federal Government received a total of N266.13 billion from the total disbursement. States received a total of N185.77 billion, and Local Governments received N138.97 billion. 
  • The sum of N28.50 billion was shared among the oil producing states as 13% derivation fund. 
  • Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS)and Department of Petroleum Resources (DPR) received N6.32 billion, N15.05 billion, and N2.68 billion respectively as cost of revenue collections. 

READ: Nigeria considers request for debt relief as debt stock climbs

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South-South scoops highest share 

The South-South region, also known as the Niger Delta region, received the highest share of the disbursement in the month of July. The region received a sum of N49.44 billion, representing 25.4% of the total net allocation for states. 

This is largely because the region contributes mostly to crude oil production in Nigeria, which is a significant source of revenue for the federation. Out of the six states in the region, only Cross River State is not an oil producing state. Hence, Rivers, Edo, Akwa Ibom, Bayelsa, and Delta States received a total of N24.28 billion as part of 13% oil derivation fund.  

North-West region received N36.83 billion (18.9%); followed by North-Central region, which received a net total of N30.69 billion (15.8%). Others include South-West (N29.55 billion), North-East (N26.32 billion), and South-East (N21.97 billion). 

READ: Fidelity Bank to raise N50 billion in bonds in Q4 to refinance existing debts

External debt deductions 

A total of N4.47 billion was deducted from the state’s allocation, as external debt deductions for the month of July. Lagos State parted with the highest amount of N1.46 billion, representing 32.6% of the total debt deductions in the month. A sum of N9.74 billion has been deducted as a result of external debt obligations between January and July 2020. 

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READ: Investors flee Nigerian Stocks as FDI and FPI dips

It is worth noting that, the State’s external debt has declined by 9.67%, from $1.39 billion recorded as at the end of December 2019 to $1.26 billion in June 2020. 

Others on the list of top 5 deductions are, Kaduna (N414.6 million), Oyo (N305.4 million), Rivers (N280.3 million), and Cross River (N222 million). On the flip side, Ogun State parted with the lowest, as N9.1 million was deducted, followed by Borno (N21.6 million), and Taraba (N24.5 million). 

READ: Nigeria’s manufacturing sector contracts for 5th consecutive month – CBN 

Upshot 

  • With dwindling federally collected revenue, caused by volatility in global crude oil price and economic downtrend caused by COVID-19 pandemic, it is evident that federal allocations will likely face drastic decline, which is a cue for the State governments to strategize on more creative ways of generating revenue internally.  
  • A quick check at the states’ IGR numbers, shows that 91.9% of the states in Nigeria with the exception of Abuja, Ogun, and Lagos States rely more on federal allocation, as against internally generated revenue. 
  • This implies that several states in Nigeria are technically bankrupt without debt financing, and Federal Government monthly allocation. 

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Macro-Economic News

Despite billions on agriculture, food inflation up by 108% since 2015

About N2 trillion spent in the last 5 years to achieve food self-sufficiency.

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Despite billions on agriculture, food inflation up by 108% since 2015.

Nigeria’s food inflation has more than doubled since August 2015, exactly 5 years after the Buhari Administration took charge of the Nigerian economy.

This was determined by comparing the composite index for food inflation rate in August 2020 versus same period in 2015. The difference is a whopping 108% increase in inflation rate, in just 5 years. Within this period, Nigeria’s exchange rate has been devalued by 49%.

Whilst the Nigerian economy has been ravaged by a very low oil price environment, since it fell from over $100 per barrel in 2014, most of the reasons for the increase in cost of living are partly attributed to some of the policies of the government.

READ: Presidency gives reason for forex ban on food and fertilizer imports as MAN reacts

Since 2015, the government has focused on a ‘grow-what-you-can-eat’ policy, pouring billions of naira into the agricultural sector. Since its inception in 2015, the Anchor Borrowers Programme (ABP), has received about N190billion disbursement from the CBN.

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Another N622billion was lent through banks under the Commercial Agriculture Credit Scheme. Add the various grants, tax incentives, and concessions, that’s almost N2 trillion spent in the last 5 years on helping Nigeria to achieve food self-sufficiency.

READ MORE: FPI and FDI drop to $68 million and $18 million respectively in April, lowest since 2016

Whilst modest successes have been recorded, the cost of staple food items remain high – galloping in each passing month. Since the border closure was announced in August 2019, the food inflation rate has risen every month, from 13.17% in August of 2019 to 16% last month. It is projected to hit 20% by the first quarter of 2021, when the effects of the increase in petrol and electricity prices are accounted for.

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Despite billions on agriculture, food inflation up by 108% since 2015.

Nigerians have never had it this bad. Despite the good intentions of the government, things have not particularly turned out well. A common challenge in trying to solve a problem is not being able to manage what is outside of your control. In agriculture, a lot seem to be outside of the control of this government.

Explore the Nairametrics Research Website for Economic and Financial Data

Yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians. Farmers also face insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. Even after harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.

For items under its control, it still cannot determine the outcomes, and the causes and effects. Just last week, it announced the banning of maize, only to flip-flop after learning that poultry farmers lacked maize feeds to grow their chickens. It quickly granted licenses to four companies to import maize.

(READ MORE:Nigeria’s inflation rate jumps to 12.82%, highest in 27 months)

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Thus, while the government attempts to manage what it can control such as banning of imports, denying access to forex, and of course border closure, it cannot solve all these problems with CBN funding and banning. They are structural, and require a better approach that is private sector driven, yet pragmatic. The government also needs to tell itself the truth; Nigeria cannot be self-sufficient by banning.

READ: Nigeria’s border closure hurt many Ghanaian exporters – Ghanaian Foreign Minister

So long as we continue to avoid relying on data and objective reasoning, to balance the need for local agro-processing and imports to meet demand, food inflation will remain high and galloping. Who knows, by the time this administration’s tenure is up, we could be looking at a state of emergency driven by a full blown food crisis.

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Macro-Economic News

Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months

Highest increases were recorded in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products and others.

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Nigeria's inflation rate, Headline inflation jumps to 11.61% in October on border closure

Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was contained in the recent Consumer Price Index (CPI) report, released by the National Bureau of Statistics (NBS).

The latest figure is 0.40% points higher than the rate recorded in July 2020 (12.82%). while on a month-on-month basis, the Headline index increased by 1.34% in August 2020.  

READ: CBN orders BDCs to sell forex at N386/$1

Food inflationA closely watched component of the inflation indexstood at 16% in August compared to 15.48% recorded in July 2020. On month-on-month basis, the food sub-index increased by 1.67% in August 2020, up by 0.15% points from 1.52% recorded in July 2020.

This rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fish, Fruits, Oils and fatsand Vegetables.

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READ: Plentywaka raises $300,000, seeks partners as it launches operations in Abuja

Core inflation: This excludes the prices of volatile agricultural produce, also rose to 10.52% in August 2020. It is up by 0.42% points when compared with 10.1% recorded in July 2020. On month-on-month basis, the core sub-index increased by 1.05% in August 2020. This was up by 0.30% points when compared with 0.75% recorded in July 2020. 

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READ: Currency traders relatively neutral on U.S dollar, despite impressive U.S Jobs report

What drove inflation: Inflation for the month of August was driven by recorded increase in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products, Maintenance, and Repair of personal transport equipment. 

Others are Vehicle spare parts, Motor cars, Passenger transport by road, Repair of furniture, and Paramedical services.

READ: Nigeria government releases oficial gazette on list of pioneer industries and products

Upshot: As Nigerians continue to grapple with the effects of the COVID-19 pandemicand the reopening of the economy, prices of commodities such as air transport, and medical services seems to have been affected due to policies implemented, with the aim of curbing the spread of COVID-19 in the country. 

It is therefore evident that Nigerians are spending more, despite fixed income, contraction of economic activities, and dwindling rate of investment returns. 

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