Foreign Reserves Depreciated By $790m
Nigeria’s foreign exchange reserves have depreciated by $790 million despite the rise in crude oil prices.
The foreign reserves stood at $34.43 billion as at May 17 data from the Central Bank of Nigeria (CBN) website showed.
Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said oil prices touched $70 per barrel (pb) for the first time since mid-March on improved oil demand amid the ease of restrictions in the United States, United Kingdom and some European countries.
The bullish outlook for oil is further bolstered by the pent-up travel demand that is set to be let loose in the summer with the resumption of international flights.
This could push Brent further up to $75pb by next month. While this is positive for fiscal and external accretion, the fuel subsidy debacle will present itself again, this time more ferociously.
“Domestic commodity prices are still rising in spite of conflicting data from the NBS. Has inflation peaked? Or what could possibly be moderating the impact of insecurity and supply chain disruptions on food prices? These are just a few of the questions that the MPC will ponder at their meeting next week (May 24/25),” Rewane said.
The reserves decline has also been attributed to drop in diaspora remittances due to patronage of illegal remittance channels.
To reverse the trend, the CBN Governor, Godwin Emefiele, announced continued implementation of the ‘Naira for Dollar’ scheme, which gives N5 rebate for every $1 sent by Nigerians in diaspora to the country.
Previous foreign reserves movement showed that, on April 1, this year, the reserves stood at $34.85 billion, representing $404 million increase compared to $34.41 billion on March 11.
Meanwhile, the CBN-led Monetary Policy Committee (MPC) will be meeting this week in Abuja.
The 279th Meeting of the MPC members are expected to take serious measures to ensure that more foreign capital flows into the economy. They are also to take decisions that would curtail capital flow reversals and rising inflation.
The consumer price index, which measures inflation, felled to 18.12 per cent last month while food inflation also declined to 22.72 per cent, the National Bureau of Statistics (NBS) said.
The Meeting of the MPC is expected to keep all policy rates- Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) unchanged. That decision will prevail despite rising calls from economic experts for the committee to lower benchmark interest rate.
Aside the reserves and inflation, the naira has also come under pressure amid devaluation fears. The local currency is exchanging at N485 to the dollar on the parallel market. However, on the the Investors and Exporters (I&E) Forex window, the currency depreciated to N411.50 to dollar.
Emefiele said that Nigeria, like other emerging market countries and countries reliant on oil exports, the retreat by foreign portfolio investors significantly affected the supply of foreign exchange into Nigeria.
Speaking at the 55th Annual Bankers’ Dinner in Lagos, the CBN boss said the need to adjust for the decrease in supply of foreign exchange led to the depreciation of the naira.
“With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” he said.
Emefiele explained that due to the unprecedented nature of the shock, the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables.
This, he said was in line with international best practices in countries where managed float arrangements are in operation.
“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange. These measures have helped to prevent a significant decline in our reserves,” he said.
The International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.
The IMF insisted that restrictions on access to foreign exchange for certain categories of goods, and multiple exchange rates create distortions in both private and public sectors decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.
Moving forward, the Fund suggested removal of foreign exchange restrictions, and a full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.