External Reserves Fall To $25.3bn In September | Independent Newspapers Limited
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External Reserves Fall To $25.3bn In September

cbn; interbank, external resesrves
Posted: Sep 7, 2016 at 6:50 am   /   by   /   comments (0)

*Shed $5.9bn In One Year


Bamidele Ogunwusi



Nigeria’s external reserves continued its downward trend in September as it dropped by a total of $752 million from $26.12 billion in August to close at $25.363 billion as at September 2, 2016.

The current position of the reserves, which are derived mainly from the proceeds of crude oil earnings, represented a decline by $3.706 billion or 12.74 percent, as against the $29.069 billion it stood at the beginning of this year, according figures gathered from the Central Bank of Nigeria (CBN).

The reserves also dipped by N5.939 billion or 19 percent from N31.302 billion a year ago on September 1, 2015.

External reserves continued decline is as a result of fall in oil prices and attempt by the CBN to support the ailing naira at the foreign exchange market as it stepped up dollar sales to boost liquidity at the interbank market.

The Central Bank has been selling dollars regularly at the interbank market to prop up the naira since it floated it on June 20.

In June and July, the reserves hovered between $26.3 billion and $26.4 billion, but fell to $26.12 billion on August 1.

The reserves had stood at $26.4 billion between May 24 and 27, after dropping to $26.5 billion from $26.6 billion in the same month.

Between May 31 and June 7, the external reserves stood at $26.3 billion, before rising back to the $26.4 billion mark on June 8, a level it maintained up until June 24. On June 27, it fell back to $26.36 billion.

The CBN had in June lifted its 16-month-old currency controls and auctioned about $4 billion on the spot and futures market to clear a backlog of dollar demand to help boost interbank market trading.

Mr. Johnson Bright, the Head of Research and Investment Advisory at Waterhall Capital Limited, said several factors could lead to the decrease in the external reserves.

He said, “Though there is a slight increase in international crude oil prices week on the heels of production freeze expectations from OPEC which may have raised the external reserves position. Although we are currently witnessing production cut due to the militants’ vandalism, the lag effect of this crude price increases may have raised the reserves.”

He said another major factor that could have brought about the decrease in external reserves was foreign investment, which he said has not been encouraging in recent times.

Bright said, “It is a negative development for the reserves to have depleted by as much as $752 million in a month but when you look at the drop in foreign investment in recent times, then you need to think twice and pray for a better days in the future”.

He noted that the Federal Government had been receiving some bashing in recent days, with calls for it to do something about the economy and attract foreign direct investment.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, described the development as worrisome, adding that foreign reserves represent what came in and had not been distributed.

The global plunge in oil prices has caused the persistent depletion of the nation’s foreign reserves. The development also forced the CBN to introduce foreign exchange controls, which were abandoned in June.

Analysts at FBN Quest noted the peak in crude oil price from its recent floor in January, saying the budget assumption of $38 per barrel has started to look conservative. They predicted an end-2016 spot price for Bonny Light of $55 per barrel.

“They said, the global supply/demand balance for crude is set to remain out of kilter until late 2017. Inventory accumulation, data-driven China worries and an uncompromising Saudi stance militate against an earlier recovery.

“The success of the President Muhammadu Buhari agenda rests upon whether its expansionary fiscal stance will deliver the capital spending and the jobs to make its contribution to a revival in the economy. This, in turn, requires that it comes close to hitting its ambitious targets for non-oil revenue generation.

“These are heady projections and the impact of the 2016 budget will not be felt much before the end of the year. Beyond the fiscal, the FGN would do well to clarify its policies and trumpet its successes, given the limits on the patience of voters and markets.

They also predicted that there would be unexciting growth this year and next. Growth of 2.1 per cent year-on-year was recorded in fourth quarter Q4 2015, which was the lowest in the revised series of national accounts.

Analysts also projected that a combination of government spending, sector-specific reforms and a modest rise in oil revenues should deliver unexciting growth of 3.5 percent in 2017.