THERE are indications that the nation’s external reserves will fall below $41.5 billion at the end of this month, the lowest in six months. Last week, the persistent decline in the reserves worsened as the week-on-week decline rose by 80 percent to $529 million from an average of $293.5 million in August.
Data from the Central Bank of Nigeria, CBN, shows that the reserve dropped to $43.144 billion on Thursday, September 5, 2019 from $43.673 billion on Thursday, August 29, 2019, indicating a decline of $529 billion, or 80 percent week-on-week.
Wither Nigeria in another 50 years? Analysts believe this trend would persist at least in the short term pending a significant positive shift in the nation’s macroeconomic fundamentals, and consequently, the reserves will close the month at $41.24 billion, the lowest in six months since February.
After seven months of persistent decline from a peak of $47.989 on July 5, 2018, the reserves enjoyed steady upward trend from $41.2 billion on February 28, 2019.
The upward trend peaked at $45.175 billion on June 10, 2019, and subsequently began a trend reversal till date.
Analysis show that the reserves have fallen by $2.031 billion between June 10, 2019 and September 5, 2019.
The persistent decline is driven by increased dollar sales by the CBN in its bid to defend the naira in the face of huge dollar demand by foreign portfolio investors, FPIs, exiting the nation’s fixed income market.
The decline is aggravated by declining dollar supply from FPIs due to decline in yields on the nation’s fixed income instrument, as well as apprehension over risk of Naira depreciation fuelled by declining price of crude oil, which accounts for 80 percent of the nation’s foreign exchange earnings.
Commenting on this in his review of the foreign exchange market in August, Bismarck Rewane, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, said: “Many FPIs rushed out of the door as fears of forex restrictions send jitters down their spines”.
Analysts at United Capital Plc and Afrinvest Plc noted that the continued volatility in the crude oil market poses risk of further decline in the nation’s external reserve.
“With the current volatility in the oil market, near-term pressures will still exist on Nigeria’s reserves,” said analysts at United Capital Plc.
“The prospect for accretion in reserves remains weak as oil prices slightly moderated to $60.01 per barrel from $61.04 per barrel last week”, said Afrinvest analysts.