The country’s foreign reserves dropped by $4.45 billion from the $43.07 billion recorded in January 2019 to $38.61 billion in December 2019, a Central Bank of Nigeria’s data revealed.
The data stated that Nigeria’s foreign reserves has kept a downward trend since June 2019, when it dropped from the $45 billion mark in July, to reach the 40 billion mark. It slides further pass the $40 billion mark later in November and currently stand at $38.61 billion.
Meanwhile, the Central Bank recently disclosed that Nigeria’s dependence on crude oil for more than 60% of fiscal revenue and over 90% of forex earnings implied that the country’s revenue and forex supply was exposed to shocks from the international oil market.
It added that these shocks were transmitted to the Nigerian economy as manufacturers and traders who required forex for purchase of necessary raw materials were faced with deteriorating supplies.
“With the drop in forex inflows, the exchange rate at the parallel market rose from about N200/$ in August 2015 to N525/$ in February 2017. Inflation also rose from 9.6 per cent in January 2016 to over 18.7% in January 2017.
“Our external reserves fell from about $31bn in April 2015 to $23bn in October 2016, and activities in the industrial sector witnessed a lull as manufacturers struggled to get access to key inputs needed in the production process,” said Godwin Emefiele, CBN Governor.
Analysts have stated that oil is no longer the biggest driver of CBN reserve inflows, adding that in 2018, oil accounted for 26% of CBN USD inflows (Q119:23%) vs over 90% before 2015. CBN purchases at the spot and swap market are now a big driver half of non-oil FX flows.
However, in a bid to manage the country’s foreign reserves and stabilize the Naira, the CBN introduced a demand management approach to conserve the country’s reserves and support domestic production of certain goods in Nigeria through the introduction of the Investment & Export window (I&E).
“The introduction of the I&E window, along with improvement in domestic production of goods, has helped shore up our external reserves. Transactions have reached over $55bn since the inception of the window and our foreign exchange reserves has risen to $42bn in September 2019 from $23bn in October 2019,” he added.
Also, the CBN Governor, Godwin Emefiele had recently mentioned that if external reserves drop to between $30 billion and $25 billion, and oil price falls between $50 – $45, the apex bank could consider moving on to float the exchange rate and devalue the naira.