Second-guessing why the external reserves are growing

Nigeria’s fast growing external reserve is great news but it has left many financial analysts trying to explain the reason for the high-speed growth in reserves. BusinessDay calculations shows that the country’s external reserve has grown by a minimum of US$5 billion since it touched a low of US$23.9 billion on 19 October 2016.

In January alone, the external reserve is estimated to have risen by an average of US$2.3 billion. The country now has US$28.9 billion in its reserves, according to the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele and this by BusinessDay calculations is enough to pay for about seven months of imports.

But analysts are trying to understand the reason for the high-speed rise in the external reserve in order to understand if it is sustainable or a fluke. Analysts say that the increase in the external reserve in December could be easily explained by a US$600 million loan inflow from the African Development Bank (AfDB) but the rise in subsequent months cannot be easily explained.

Even though higher crude oil prices and higher production figures due to relative peace in the Niger Delta has also contributed to the rise in reserves, some analysts think that could not account for all the inflows into the reserves.

This has led to speculation that the federal government may have started recovering some of the “alleged” looted funds that they have been tracking outside the country. The federal government has been expecting to receive about US$500 million of looted funds from the US and also has forfeiture order placed on some US$9 billion of suspected stolen funds around the globe. Analysts are beginning to wonder if some of these expected recoveries are coming in at last. Until, the CBN explains the consistent rise in reserves, the speculation will continue.