Experts blame CBN naira defence, oil price as external reserves slide

Economic experts have attributed the decline in Nigeria’s external reserves to the Central Bank of Nigeria’s intervention to stabilise the naira and the recent collapse in global oil prices, among other factors.

The nation’s external reserves fell by $440m in two weeks from $41.15bn at the start of this month, according to the latest data from the Central Bank of Nigeria.

The experts, who spoke with our correspondent in separate interviews on Saturday, noted that the external reserves were mostly determined by the revenue from oil exports.

The reserves, which dropped by $610m in November from $41.83bn on October 29, declined further to $40.71bn as of December 15.

The CBN data showed that the reserves, which had gained $5bn in October, returned to a downward path in November.

The reserves increased from $36.78bn on September 30 to $41.83bn as of October 29.

When contacted by our correspondent, the spokesperson for the CBN, Mr Osita Nwanisobi, declined to comment on the recent fall in the reserves.

The naira has continued its downward trend in recent weeks at the parallel market.

Bureau de Change operators, who spoke to our correspondent, said they bought the dollar at N565 and sold it for N569 on Saturday.

Three weeks earlier, the dollar was bought and sold for N550 and N555.

The BDC operators linked the fall in the value of the naira to an increase in the demand for the dollar.

“The fluctuation in global oil prices is part of the problem, and they use the reserves to support the naira; that is why we are having that problem. You know the oil revenue determines the reserves,” said the Chairman of the Foundation for Economic Research and Training, Prof. Akpan Ekpo.

Foreign portfolio investors withdrawing funds – Ukpong.

A professor of Financial Economics, Leo Ukong, noted that the international oil benchmark, Brent crude, had plunged to about $71 per barrel from over $80 per barrel.

Ukpong, who is also the Dean of the School of Business and Entrepreneurship, American University of Nigeria, Yola, said, “Our number one source of external reserves is the sales of crude oil.

“What changes from day to day is the price of crude oil. When crude oil price goes up, you will see our reserves also increasing because the price is in our favour; when the price of crude oil comes down, you will also see that our reserves will tend to follow suit.

“If you look at the oil price, for the past one and a half month, it was above $80 before November. As of today, it is around $71. Between August and September, the crude oil price was rising.”

According to him, Nigeria has been involved in a lot of foreign bonds, which the country’s accounting system regards as an inflow of foreign currencies, even though they are debts.

Ukpong said this made the external reserves seemed to be doing well in recent months when there was a rise in the reserves.

He noted that those buying crude oil had slowed down because the emergence of the Omicron variant of COVID-19 affected economic activities in many countries.

‘Mature trade obligations putting pressure on reserves’

An economist and Chief Executive Officer of Cowry Asset Management Limited, Mr Johnson Chukwu, linked the sharp and continued decline in the external reserves to high demand for the dollar.

According to him, the CBN is honouring mature trade obligations and this has expectedly led to the fall in the foreign exchange reserves.

He said, “The CBN is honouring matured trade obligations. Also, remember that the Governor, Godwin Emefiele, had given a timeline to ensure that matured portfolio remittances are honoured. So, I believe this is what is happening. If we don’t do this, more pressure will be on the naira and the local currency will continue to fall.”

Source: Punch

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