Nigeria’s external reserves declined further last month to $38.54 billion as of May 27, 2022, the lowest in over seven months, data from the Central Bank of Nigeria (CBN) show.
The reserves, which stood at $39.01 billion on October 11, 2021, lost $1.1 billion last month, according to the CBN data. It rose to a high of $41.83 billion on October 29, 2021.
Foreign exchange reserves are assets held on reserve by a monetary authority in foreign currencies. The reserves are used to back liabilities and influence monetary policy.
In January 2022, the external reserves were robust and above the international benchmark of 3.0 months of import cover, CBN’s economic report for the month of January 2022 said.
The external reserves stood at $39.38 billion as at January 31, 2022, and could finance 8.3 months of import for goods and services or 10.9 months of import for goods only.
“The external reserves have been impacted by a lot of factors, which include pressure on importation of goods services, particularly petroleum, rigid foreign exchange fixed policy of the CBN, among others,” Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said.
He said the supply of FX to the economy had been affected by the challenge of crude oil theft.
“Ideally, our reserves should have improved by now because of the increase in oil prices. We are one of the countries that have the paradox of increasing oil prices and yet our reserves are not increasing. So crude oil theft is a factor,” he said.
The price of Brent crude, the international benchmark, extended its rally by $1.61 to $123.3 per barrel as of 6:40pm Nigerian time on Tuesday. It stood at $77.24 per barrel at the end of last year.
But the rise in the price of crude oil has not reflected in the country’s external reserves.
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“The current oil production is significantly low due to maintenance, pipeline vandalism, divestment by foreign investors and insecurity. As at December 2021, Nigeria’s crude oil production was at 1.2mbpd compared to the OPEC plus quota of 1.6mbpd, hence we are not benefiting from the upside in price,” Ayodeji Ebo, chief business officer, Optimus by Afrinvest, said in February this year.
Naira, Nigeria’s currency, has continued to depreciate in spite of the various foreign exchange policy measures put in place by the central bank.
This is attributable to shortage of dollars amid rising demand as foreign exchange inflows into the economy and into the apex bank have declined.
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The economy recorded lower net foreign exchange inflow in January, driven mainly by net flows from the CBN and autonomous sources, according to the CBN.
Aggregate foreign exchange inflow into the economy declined by 36.7 per cent to $4.36 billion in January 2022 from $6.89 billion in December 2021.
The total foreign exchange outflow decreased by 5.1 per cent to $3.41 billion from $3.59 billion in the preceding period. A net inflow of $0.95 billion was recorded in the month under review, compared with net inflow of $3.29 billion in the preceding period.
Further analysis shows that foreign exchange inflow into the central bank fell by 36.7 per cent to $1.82 billion from $2.88 billion, attributed to 45.4 per cent decline in non-oil components, mainly, Treasury Single Account and third-party receipts/MDA transfers, other official receipts and swaps. Autonomous inflow also decreased by 36.7 per cent to $2.54 billion from $4.01 billion, due to reduction in invisible purchases.
