External reserves in three-month continuous fall, shed $4.94bn

Nigeria’s foreign exchange reserves have been falling
continuously in the past three months, a report from the Central
Bank of Nigeria has revealed.

Latest figures obtained from the CBN on Friday showed that the
country’s external reserves stood at $42.34bn as of October 25,
2018.

This was against the $47.28bn recorded on July 25, 2018, an
indication that the reserves dropped by $4.94bn within the
three-month period.

It was also observed that the reserves dropped from the $47.28bn
figure of July 25 to $46.09bn on August 24, and depleted further to
$44.53bb on September 25, before falling to the latest value of
$42.34bn on October 25.

On October 11 this year,Recall that the International Monetary
Fund 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.”