Economists link plunging Nigeria’s foreign currency reserves to May 29 democratic uncertainties


Analysts and stakeholders link Nigeria’s foreign reserves drop to waiting on change of government on May 29, 2023.

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The plunging fortune of Nigeria’s gross official reserve has been attributed to reduction in foreign exchange inflow into the country as well as high demand for forex by Nigerians for business, travelling, education and medical purposes.

Nigeria’s external reserves have been declining since 2022 almost on a monthly basis as it went down further by about $317 million month-on-month (m/m) to $36.7 billion in February 2023, according to recent data by the Central Bank of Nigeria (CBN).

As at Thursday, March 9, 2023, the nation’s external reserves slipped to $36.414 billion from $36.7 billion which was recorded at the end of February 2023.

Significantly, with the exception of accretions recorded in the months of April, June, and July 2022, the gross official reserves have been declining steadily since November 2021.

In 2022 alone, the CBN said Nigeria’s external reserves fell by $3.43 billion.

The CBN disclosed in its movement on external reserves figures that the reserves which stood at $40.52 billion as of the end of December 31, 2021, ended December 29, 2022 at $37.09 billion.

At the last Monetary Policy Committee (MPC) meeting of the CBN in November, the governor, CBN, Godwin Emefiele, said, “The committee observed the decline in the external reserves position, as gross external reserves decreased by 1.34 percent at end-October 2022 to $36.87 billion, from $37.39 billion at end-September 2022.

“With indications of lower crude oil prices in the futures market, members urged the bank to sustain its current policies to boost non-oil exports in order to shore up the external reserves.”

A member of the MPC, Robert Asogwa, said, “The recent drop in external reserves is, however, linked to the decline in oil exports even at a time of higher oil prices.

“Interestingly, the publicised reduction in oil thefts across the Niger Delta and the rising prospects of increased overseas remittances would likely boost the gross external reserves to a large extent in early 2023.

“With indications of lower crude oil prices in the futures market, members urged the bank to sustain its current policies to boost non-oil exports in order to shore up the external reserves.”

Analysts at FBNQuest are of the opinion that “reduced foreign exchange inflow into the economy and increased demand pressure on the gross official reserves both highlight the downward trend in the reserves”.

However, total reserves as at end of February 2023 covered 7.2 months of merchandise imports on the basis of the balance of payments for the 12 months to September 2022 and 5.6 months when we add services.

“For a more accurate picture, we must adjust the gross reserve figure (and the import cover) for the pipeline of delayed external payments”, analysts said.

Like Nigeria, South Africa’s international liquidity position (ILP), a more comparable figure to Nigeria’s gross external reserves, decreased by $760 million in February 2023 to $54.1 billion.

This, the analysts said, was mostly due to the decline in the price of gold, and valuation adjustments due to the appreciation of the US dollar.

“To obtain a figure for the ILP, we add the forward position of the South African Reserve Bank to the gross reserves (which includes forex deposits and gold reserves) and then adjust the figure downward for some other less liquid component of the reserves.

“In contrast Egypt’s net foreign reserves increased by $128 million to almost $34.4 billion. In December 2022, the International Monetary Fund (IMF) approved a $3 billion extended fund facility for the country over a 46-month period to help cover its balance of payment deficit”, the analysts added.

They are, however, of the opinion that things may change for the better for the country in the near future considering the fact that good news seems to be on the horizon from the oil industry.

“According to data from the Nigerian Upstream Petroleum Regulatory Commission, Nigeria’s crude oil output (including condensates) increased to 1.49 million barrels per day (mbpd) in January 2023 from 1.41mbpd in December 2022.

“A sustained increase in oil production near historical levels may likely be favourable for the gross official reserves”.

Stephen Iloba, a Lagos-based economist, said, “As you know, the decline in external reserves can be attributed to several factors, including a drop in oil prices and a slowdown in foreign investment inflows. This has led to a decline in the country’s foreign exchange earnings and increased pressure on the country’s currency, the naira”.

In response to this trend, Iloba said, “The CBN has taken several measures to bolster Nigeria’s external reserves, including tightening restrictions on foreign exchange transactions and increasing interest rates. However, these measures have yet to show significant results”.

Other experts, who spoke to Daily Independent, expressed concern about the sustainability of Nigeria’s current economic trajectory, particularly in light of the country’s high debt levels and dependence on oil revenues. They called for urgent action to diversify the country’s economy and reduce its dependence on oil.

They said the incoming government will have to work with the CBN to implement policies that will promote economic diversification and sustainable growth.

Gbenga Samson
Gbenga Samson
Samson Gbenga Salau [Editorial Board Adviser] Gbenga Samuel Salau is a professional journalist with over 17 years experience in journalism, he is a graduate of Communication and Language Arts, University of Ibadan. On completion of his youth service, he joined The Guardian as a freelance journalist and was later absorbed as a staff. While in the University, he was a campus journalist reporting for the Independence Hall and Faculty of Arts Press Clubs. As a campus journalist, he won the following awards; Independence Hall Press Best News writer; University of Ibadan Union of Campus Journalists’ Best News Reporter/Writer; First Runner-up, Reuben Abati Award for Investigative Journalism; Association of Faculty of Arts Students’ Press Best Reporter; University of Ibadan Union of Campus Journalists’ Best Political Writer; Winner, Reuben Abati Award for Investigative Journalism, and University of Ibadan Union of Campus Journalists’ Best Interviewer. He served the Association of Communication and Language Arts Students, as the Public Relation Officer, the same year he was appointed the News Editor of the Association of Faculty of Arts Students Press. The following session, he was made the General Editor, and a member of the 13-man University of Ibadan Students’ Union Transition Committee. As a reporter in The Guardian, in 2014, he won the Promasidor Quill Award Best Report on Nutrition and DAME Business Reporting category. In the 2015 edition of the Promasidor Quill Award, he won the best Report on Nutrition and Brand Advocate Categories, while in 2016, he won the NMMA Print Journalist of the Year, first runner-up Golden Pen Reporter of the Year and SERAs CSR Awards. Gbenga Salau loves traveling, reading, and listening to songs with good lyrics no matter the genre.

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