Nigeria’s gross external reserves have continued to decline, dropping by $317 million to $36.7 billion in February 2023, data from the Central Bank of Nigeria (CBN) show.
The latest decline, according to a new report by FBNQuest, can be attributed to reduced foreign exchange (FX) inflow into the economy and increased demand pressure on the gross official reserves.
“With the exception of accretions recorded in the months of April, June, and July 2022, the gross official reserves have been declining steadily since November 2021,” FBNQuest said.
Bismarck Rewane, the managing director of Financial Derivatives Company Limited , said Nigeria’s sources of foreign exchange remain weak due to sub-optimal oil production induced by oil theft.
“Nigeria FX earnings suffer from capital flow reversal owing to global monetary tightening and exchange rate premium at the parallel market,” Rewane said in his latest presentation at the Lagos Business School.
Other experts attributed the decline in foreign reserves to the constant intervention by the CBN at the official FX market in a bid to defend the local currency.
“The dwindling crude oil production and continuous intervention by the CBN in the official market might have contributed to the drop in external reserves in October,” Henry Ogbuaku, head, of asset management at Growth and Development Asset Management Ltd, said.
“The bulk of our foreign exchange earnings come from the oil sector. However, Nigeria has not been meeting its OPEC crude oil production quota due to oil theft and pipeline vandalism,” he added.
Kelvin Atafiri, the CEO of Cavazanni Human Capital Limited, said the decline in external reserves was an indication of limited or inadequate accretion to external reserves.
“We know that the only major contributing source to foreign reserves is crude oil exports, and since Nigeria is not able to meet her Organization of the Petroleum Exporting Countries’ (OPEC) production quota, it follows therefore that external reserves will suffer a such level of inadequacy,” Atafiri said.
According to the Nigerian Upstream Petroleum Regulatory Commission’s latest oil production status report, Nigeria’s crude oil output rose to 1.3 million barrels per day (bpd) in February, the highest in 13 months.
Data from the NUPRC shows that the country’s oil production increased by 39 percent from 937,766 bpd in September when the country was battling with oil thieves. On a month-on-month basis, Nigeria’s crude oil output rose by 48,154 bpd from 1.26 in January.
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“Also, oil earnings take about three months to settle in cash, which means most of the transactions for higher oil prices recorded in recent weeks are yet to settle in,” Atafiri said.
Like Nigeria, South Africa’s official reserves fell by almost $760 million to $54.1 billion.
“The drop in the country’s international liquidity position is mainly attributable to the decline in gold price during the month. This was mostly due to the decline in the price of gold, and valuation adjustments due to the appreciation of the US dollar,” FBNQuest said.
In contrast, Egypt’s official reserves increased by about $128 million to about $34.4bn in May, primarily because of external debt service repayments comprising mainly of Eurobonds and IMF loans.
Last December, the International Monetary Fund approved a $3 billion extended fund facility for the country over a 46-month period to help cover its balance of payment deficit.