By Kayode Tokde
At $36.6billion, the Nigeria’s foreign reserves hit over 20-month high amid steady increase in global oil price, increasing investment from Diaspora, among others sources.
Foreign exchange reserves are assets held on reserve by a monetary authority in foreign currencies, quite often used to back liabilities and influence monetary policies. They could be in the form of foreign banknotes, deposits, bonds, treasury bills and other foreign government securities.
The country’s foreign reserves had gotten a timely boost when a share of $3.5billion from the $650 billion Special Drawing Rights (SDRs) was approved by the International Monetary Fund (IMF) to boost global liquidity, matures for collection.
The nation’s foreign reserves was at $34billion in August, which enhances the capacity of the CBN to fund higher volumes of external transactions and achieve a further convergence of the exchange rate around the Investors & Exporters ( I & E) window.
The approval for the SDRs credit was announced by the board of IMF on August 4. SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF. They are units of account for the IMF and not a currency.
Meanwhile, as at last Wednesday, the figure appreciates to $36.6 billion, as it gained by $2.42billion from $34 billion it opened in September, reflecting the gains in rising oil prices in recent months.
A total of $947.6million has been added in reserves year-to-date, the foreign reserves maintained steady growth in September from $34.01billion to $36.6billion as at September 29, 2021.
The Organization of Exporting Countries (OPEC) basket price closed September 30, 2021at $77.72 per barrel from $50.24 per barrel it opened this year.
Oil revenue constitutes about 60 per cent of Nigeria’s revenue and 90 per cent of Nigeria’s source of foreign exchange earnings, even though it accounts for just nine per cent of the nation’s Gross Domestic Product (GDP).
Oil prices have been relatively stable recently, with Brent price selling above $70 per barrel.
Before now the foreign exchange buffer fell by $222.3 million between May 31 and June 10 to $34 billion, according to figures published by the Central Bank of Nigeria (CBN). The last time it fell below that mark was between June and July of 2017.
The country’s foreign exchange buffer had continued to trend downwards despite the positive rally recorded in the global crude oil market, with Brent crude currently trading at $73.5 per barrel. It has sustained a steady troubling decline in the past two months after a short-lived upswing that took it to $35 billion.
As experts had raised concern over the slide of the foreign reserves in 2020, as the Governor, CBN, Godwin Emefiele, allayed fears, saying the amount could sustain seven-month imports.
He had assurance analysts to have cautioned that unforeseeable market risks, especially as underscored by COVID-19, call for larger external reserves.
With the steady increase in foreign reserves, analysts have explained that the ban foreign exchange sales to Bureau de Change (BDCs). Also contributing, the CBN Governor had on July 27, at the end of the Monetary Policy Committee meeting, announced the stoppage of forex sale to the BDCs, saying they had turned themselves into “agents that facilitate graft and corrupt activities of people who seek illicit fund flow and money laundering in Nigeria.”
The Former President Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola in a chat with Nigerian NewsDirect disclosed that hike in crude oil as factor responsible for steady increase in foreign reserves with $36billion threshold as at September 30, 2021.
He noted that development would help stabilise Nigeria’s foreign exchange rate.
According to him, “It’s basically a reflection of the rise in crude oil price. Brent touched $80 per barrel last week.”
When asked on the implication on Nigeria’s economy, Ajibola said, “Growing external reserves is primarily used to provide liquidity in the forex market. So, it will help to stabilise the Exchange rate.”
According to Economist and Former Director General, Lagos Chambers of Commerce (LCCI), Mr. Muda Yusuf said, “It’s a welcome development. The most probable factor would be enhanced accretion to reserves on the back of the gradual rebound of crude oil price.
“Ordinarily, the impact would have been more but for the reverse flow of foreign exchange earnings resulting from the importation of petroleum products. This is why the net benefit of high oil prices is typically very marginal.
“The continued dependence on fuel imports would continue to deny the Nigerian economy the full benefits of the upswings in oil prices.”