Steady Rise In Oil Price Pushes Foreign Reserves To $39.5bn
Nigeria’s foreign reserves have climbed to $39.5 billion on the back of steady rise in crude oil prices and drawdown on international loans.
The Brent crude, the global benchmark, was up by 85 cent to trade at $85.71 a barrel yesterday.
Crude oil demand picked up with the recovery from the COVID-19 pandemic, with a further boost from power generators who have been turning away from expensive gas and coal to fuel oil and diesel.
The International Energy Agency said the energy crunch is expected to boost oil demand by 500,000 barrels per day (bpd). That would result in a supply gap of around 700,000 bpd through the end of this year, until the Organisation of the Petroleum Countries and allies, together called OPEC+, add more supply, as planned in January.
The Central Bank of Nigeria (CBN) data captured the significant increase in the external reserves which rose to $35.97 billion at end-August from $33.49 billion at end-July, representing an increase of 7.41per cent. The external reserves further increased to $36.03 billion on September 13.
There was also marginal increase in the external reserves which rose to $33.83 billion on July 22 from $32.78 billion as at June 30.
Previous foreign reserves movement showed that on April 1, the reserves stood at $34.85 billion and $34.43 billion as at May 17. The foreign reserves achieved the new peak of $39.5 billion on October 13.
The rise in foreign reserves was also attributed to foreign loans taken by the Federal Government through Eurobond issuances at the International Capital Markets and the International Monetary Fund (IMF) within the year.
Last month, Nigeria raised $4 billion from Eurobond market, $1 billion higher than $3 billion targeted. The three-tranche deal will help finance projects outlined in the Nigerian 2021 Appropriation Act and fund infrastructure.
The government also got $3.4 billion loan from the IMF to fight the devastating effect of the COVID-19. The loan, which has a maximum repayment period of five years was approved by the Fund’s board in May.
Furthermore, the Director-General, Debt Management Office, Patience Oniha, is currently engaging international investors to key into $2.1 billion Eurobond Offering planned by the Federal Government.
CBN Governor Godwin Emefiele explained 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 the country.
“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.