External reserves drop by $1bn in 13 days

The nation’s foreign exchange reserves have dropped to a
seven-month low, losing $1.02bn in the 13 days to Monday, latest
data from the Central Bank of Nigeria showed on Wednesday.

The external reserves, which stood at $44.30bn on September 28,
fell from $44.02bn on October 2 to $43bn on October 15.

The reserves, which rose to a high of $47.865bn on May 10, have
dropped by $4.86bn in five months.

As of March 5, the reserves stood at $43.12bn, up from $42.75bn
on March 2, according to the CBN data.

Last week, the International Monetary Fund said Nigeria needed
to be cautious about the use of its foreign exchange reserves,
saying oil prices could decline at any time.

The IMF, in its latest Regional Economic Outlook said tighter
global financial conditions resulting from faster-than-envisaged
monetary policy normalisation in advanced economies, or a sudden
shift in investors’ sentiment could constrain financing and growth
for many sub-Saharan African countries.

“Higher US interest rates and a stronger dollar also heighten
risks, as observed historically in emerging and developing
economies. In particular, the probability of a large reversal in
foreign flows in sub-Saharan Africa is significantly higher the US
interest rates go up,” the fund added.

The Director, Corporate Communications, CBN, Mr Isaac Okorafor,
explained early this month that the external reserves had been
going down recently because of higher yields in the United
States.

Okorafor, however, gave an assurance that at the current level
of $44bn, the reserves were sufficient to take care of the nation’s
import bill for 17 to 20 months, much more than the three-month
standard recommendation.

According to him, some foreign investors who have gone to
emerging markets to take advantage of the high yields have had to
go back to the US because of better opportunities there at the
moment.

“The drop in our forex reserves is basically as a result of the
capital flow reversals arising from rising interest rates in the
United States. You will recall that the Federal Reserve has been
raising rates and has even given guidance that this would continue
in the near term,” he added.