Nigeria’s foreign reserves drops by $1.51bn in 8 months

Nigeria’s foreign reserves depreciated by $1.51billion to $39.02billion as of August 2022 from $40.52billion it closed in 2021 amid the Central Bank of Nigeria’s (CBN) increasing intervention in the foreign exchange market and decline in oil revenue.

According to the CBN, the foreign reserves depreciated by $203.9million in August 2022 to $39.02billion from $39.22billion it opened in the month under review as the local currency comes under pressure.

The foreign buffer had added $45.3million in July to $39.22billion from $39.17billion it commenced in the month under review as the CBN introduced RT $200billion Foreign Exchange Programme.

The CBN in February released the operating guidelines for the non-oil export proceeds repatriation rebate scheme as introduced in the RT200 FX programme.

Precisely, the guideline stipulates that exporters will be paid N65.00 for every $1.00 repatriated and sold at the Investors & Exporters Foreign Exchange Window (I & FX) to Authorised Dealing Banks (ADBs) for other third-party use and N35.00 for every $1.00 repatriated and sold at the I & FX for own use on eligible transactions only.

Although the rebate scheme is just one of the five key anchors of the RT200 FX programme, the CBN aims to raise $200billion in foreign exchange earnings from non-oil export proceeds over the next three to five years.

Analyst at PAC Holdings, Mr. Wole Adeyeye said: “The increase in foreign exchange inflows from the non-oil sources, through the CBN RT200 FX programme and increase in diaspora remittances, may have contributed to the increase in Nigeria’s external reserves in July.”

The CBN governor, Mr. Godwin Emefiele at the end of July’s Monetary Policy Committee (MPC) meeting, stated that members applauded the performance of the RT200 and similar initiatives targeted at improving accretion to reserves and stabilizing the exchange rate.

“The MPC noted that foreign exchange inflow through the RT200 FX Programme in Q1 and Q2, 2022, had increased substantially to approximately $600 million as at June 2022.

“Members also noted the increase in Diaspora remittances as a result of the Naira for Dollar incentive and urged the Bank not to relent in its efforts to encourage foreign exchange inflow to the economy,” he said.

Despite the increasing price of crude oil, Nigeria’s foreign reserves have depreciated by $1.3billion in seven months of 2022 to $39.22billion as of August 31 from $40.52billion it closed in 2021.

The foreign exchange buffer of the CBN in January was hovering at an average of $40billion and later slide to $39billion in three months (February- April) consecutively before reaching $38billion in May 2022.

The movement in reserves data by CBN revealed that it remained flat at $38billion in June and eventually closed at $39.16billion on June 30, 2022.

Analysing the monthly breakdown revealed that foreign reserves in January dropped by $481.4million to $40.04billion, while in February, it declined by $121.4million to $39.86billion.

The foreign reserves in March was down by $317.8million to $39.55billion and in April, the foreign reserves gained $41.5million to $39.58billion from $39.54billion it commenced the month under review.

Furthermore, the foreign reserves was down by $943.07million to $38.48billion, the highest decline in 2022 and eventually appreciated by $674.4million or 1.75 per cent to close at $39.16billion in June 2022.

The decline in foreign reserves is coming on the backdrop of a steady increase in global oil prices as gas costs soar amid fears of a global economic shock from Russia’s invasion of Ukraine.

CBN in its daily crude oil price as of July 2022 closed at $104.45 from $80.07 per barrel reported January 1, 2022.

Experts had expressed that the current crisis in Niger-Delta relating to oil theft might be responsible for dwindling production, a major contributing factor impacting on external reserves growth on the backdrop of increase in global oil prices.

They noted that the increasing CBN’s intervention in the foreign exchange market is also a contributing factor.

The International Monetary Fund (IMF), Nigeria’s FX reserve is likely to close 2022 at $38.0 billion, aided by reduced CBN intervention, dollar demand restrictions and higher oil prices.

IMF stated that the country’s foreign position is weaker as foreign buffers are limited.

The Washington-based lender said, “High interest payments relative to fiscal revenues expose Nigeria to interest rate and growth shocks.”

The Deputy Governor, Economic Policy, CBN, Kingsley Obiora, who is also a member of the MPC in a statement said the contraction in the oil sector amid rising oil prices was due to pipeline vandalism and oil theft, with adverse consequences on Federal Government revenues, accretion to external reserves and exchange rates

Another member of the CBN MPC, a Professor of Economics, University of Benin, Mike Obadan, in his personal statement said the Nigerian economy has continued to exhibit features which make monetary policy choices difficult for the policy makers, in particular, the Monetary Authority.

“Two of these features are fragile economic growth and escalating inflation. Others are high and unstable exchange rate, uncomfortable external reserves levels (the stock at US$ 38.61 billion in April, 2022 covers 7.2 months of import of goods and services), crude oil export regime which does not yield accretion to external reserves, weak capital inflows and balance of payments position, bourgeoning fiscal deficits and associated high domestic and external debt, both of which gulp a significant proportion of government revenue in debt servicing, among others,” Obadan said.