Despite the fact that Nigeria has been in recession since August last year due to lowered global prices, decrease in oil production and poor state of refineries; a report by the Central Bank of Nigeria has revealed that Nigeria’s foreign exchange reserve has increased by 4.17%.
According to the report, the reserve as at June 30 stood at $30.288 billion which when compared to the $31.551 billion as at August 16 translates to a 4.17% increase by $1.263 billion.
A brief summary of how Nigeria generates its foreign reserve
Nigeria’s external reserve is derived mainly from the proceeds of crude oil production and sales. Out of the barrels of crude oil Nigeria produces per day of crude oil in joint venture with some international oil companies, notably Shell, Mobil and Chevron, she sells a predetermined proportion directly, while the joint venture partners sell the rest. The joint venture partners then pay Petroleum Profit Tax to the Federal Government through the Federal Board of Inland Revenue.
Likely reasons for the increase in external reserves
- The cessation of militant attacks on oil and gas installations in the Niger Delta
- Reduced cost of crude oil production to $27 per barrel
- Rise in oil production output from 1.2 to about 1.8 million barrels per day
- Increase of oil prices by $1.69 to $52.72.
Composition of Nigeria’s external reserve
- Gold coin or bullion
- Balance at any bank 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 a maturity not exceeding ninety days exclusive of grace
- Treasury bills having a maturity not exceeding one year issued by the government of any country outside Nigeria whose currency is convertible
- Securities of or guarantees by a government of any country outside Nigeria whose currency is freely convertible and the securities shall mature in a period not exceeding ten years from the date of acquisition
- Securities of or guarantees by international financial institutions of which Nigeria is a member, if such securities are expressed in currency freely convertible and maturity of the securities shall not exceed five years
- Nigeria’s gold tranche at the International Monetary Fund
- Allocation of Special Drawing Rights made to Nigeria by the International Monetary Fund (IMF)
The increase in foreign reserves also means that Nigeria’s earning have increased. According to findings by THISDAY, funds disbursed by the Federal Account Allocation Committee to the tiers of government have also increased.
Here’s a summary of the disbursements:
|Tiers of Government||First half of 2016 (₦)||First half of 2017(₦)|
|Federal||854 billion||1.216 trillion|
|State||701 billion||798 billion|
|Local||429.4 billion||599 billion|
Although there’s still income from oil, Nigeria still needs to diversify the revenue that makes up her foreign reserve as she is now competitively striving to maintain buyers of oil.