The Central Bank of Nigeria (CBN) has confirmed that foreign exchange reserves have been falling continuously for three months.
It said that the country’s external reserves stood at $42.34 billion as of October 25, 2018 down from $47.28 billion recorded on July 25, 2018, an indication that the reserves dropped by $4.94 billion within the three-month period.
It also observed that the reserves dropped from the $47.28 billion figure of July 25 to $46.09 billion on August 24, and depleted further to $44.53 billion on September 25, before falling to the latest value of $42.34 billion on October 25.
The International Monetary Fund (IMF) had warned Nigeria to be cautious about the use of its foreign exchange reserves, saying oil prices could decline at any time.
The Head, Emerging Economies Regional Studies Division at the IMF’s European Department, Anna Ilyina, who spoke at the Annual General Meeting of the IMF/World Bank in Bali, Indonesia, said Nigeria and other emerging market nations had come under pressure since April.
She warned that the advanced economies’ interest rate hikes were still at the early stage, adding that Nigeria should be cautious on the use of its external reserves as global external conditions remained challenging.
She said, “A combination of factors have basically affected emerging market since then. It started with sharp appreciation in dollar due to rising interest rates in the US. In the case of Nigeria, there is one important driver that always affects its economic condition; and that is oil.
“Foreign exchange intervention might make sense in certain circumstances. But then, one has to consider the growth in fundamentals, the level of reserves and other policy tools that might be more appropriate in country-specific circumstances.”
The Deputy Director at the IMF’s Fiscal Affairs Department, Paolo Mauro, also stated that while a crucial priority for the country was increasing non-oil revenue, the ratio of interest payments on debts continued to rise out of proportion.
He said, “Certainly, increasing revenue to create the space to do social spending, infrastructure and other types of investments that support economic growth is critical. That is a matter of priority.
“Over the years, we have been discussing with the government, and we see the priorities in tax administration. But to increase the compliance rate, something could be done to increase tax audit, use e-filing to a greater extent, block leakages and corruption within the system.”
In one of their recent reports, financial analysts at the FBN Capital Limited, a subsidiary of First Bank Nigeria Plc, observed that gross official reserves declined by $1.53bn in September to $44.31bn.
They said, “This third successive monthly decline can be attributed to changes in the sentiment of foreign portfolio investors in the wake of the headwinds driven by the US monetary policy.
“Previously a consistent buyer, the CBN has therefore become a source of fx (foreign exchange) at the investors’ and exporters’ window. For nine of the 10 latest weeks for which the data is available (24 to 28 September), it has been the largest source of such inflows.”
They, however, noted that the reserves at end-September covered almost 17 months’ merchandise imports, and “close to 10 months when we include services on the basis of the balance of payments to June 2018.”