Nigeria’s external reserves fell by $2 billion to $42.06 billion in October 2018 the largest monthly drop since February 2015, in spite of the record increases in the price and production of crude oil.
The price of Brent crude stood at $75.70 per barrel as at yesterday checks. Crude oil accounts for more than 90 percent of Nigeria’s foreign exchange earnings.
Data from the website of the Central bank of Nigeria (CBN) show that external reserves stood at $44.02 billion at the beginning of the month precisely October 2, 2018.
“This is expected in light of the capital outflows in the past months,” said Ayodeji Ebo, managing director, Afrinvest Securities Limited.
However, he said the CBN has been able to manage the situation without causing a panic in the market. The domestic demand has grown significantly due to the speculations that the naira may depreciate after the 2019 general election, hence increasing buying interest.
“The external reserves remain at a comfortable level despite the $2.0bn depletion in October. The CBN has continued to raise fixed income rates to reduce the capital outflows,” Ebo said in an emailed response.
The country’s foreign buffers grew to $47.86 billion as of May 10, 2017 from $23 billion as of October 2016, when the oil price was below $40 per barrel. It however, started declining from May 11, 2018.
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“The need to manage the demand pressure in the foreign exchange market in order to keep the exchange rate stable around the current level is the main reason for the drop in the external reserves”, said Ayodele Akinwunmi, head, research, FSDH Merchant Bank Limited, in an emailed response to BusinessDay.
The CBN had in May this year announced the execution of a bilateral currency swap agreement with the Peoples Bank of China (PBoC).
The transaction, which is valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5bn, was aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies.
It was expected also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.
The CBN has continued to intervene in the foreign exchange with the most recent one being the injection of $210 million into the inter-bank foreign exchange market on Tuesday.
Authorized dealers in the wholesale segment of the inter-bank foreign exchange market received the sum of $100 million as intervention from the CBN on Tuesday, October 30, 2018 to meet the requests of their customers.
The CBN also allocated the sum of $55 million each to the Small and Medium Enterprises (SMEs) and the invisibles segments, comprising requests for tuition fees, medical payments and Basic Travel Allowance (BTA), among others.
Meanwhile, Nigeria was said to have lost approximately $2.2 billion revenue to misinvoicing in 2014, according to the Global Financial Integrity (GFI). The amount represents four percent of total annual government revenue as reported to the International Monetary Fund.
The estimated value gap of all imports and exports represents approximately 15 percent of the country’s total trade.
“The practice of trade misinvoicing has become normalized in many categories of international trade” according to GFI President Raymond Baker. “It is a major contributor to poverty, inequality, and insecurity in emerging market and developing economies. The social cost attendant to trade misinvoicing undermines sustainable growth in living standards and exacerbates inequities and social divisions, issues which are critical in Nigeria today.”
HOPE MOSES-ASHIKE
