Nigeria’s external reserves have continued to drop in recent weeks and slipped below $45 billion.
Data obtained from the Central Bank of Nigeria (CBN) shows that the external reserves now hover around $44.8 billion. Specifically, it took Nigeria 8 months to build the external reserves to hit $45 billion two months ago, after it fell below $45 billion in September 2018.
Depleting Reserves: A closer look into the CBN data in the last 12 months shows that the figure was at $45 billion as of September 2018 after which it began the free fall.
- Meanwhile, as oil prices improved in the global oil market, Nigeria’s external reserves rallied from a low $41 billion in November 2018 to $45 billion in June 2019.
- In less than four weeks, external reserves fell by $327 million.
Why reserve is depleting: The fall in reserves accumulation may be connected to prices of oil which have declined in recent weeks.
- For instance, Brent oil price dropped to below $60 a barrel in the early hours of Tuesday, as trade tension between the U.S and China intensified. An earlier report showed that the sharp drop in oil price might threaten the implementation of Nigeria’s 2019 budget that was benchmarked at $60 crude oil per barrel.
- Other factors that may be responsible include the slow down in the capital market and possibly CBN interventions in the Investors and Exporters’ window (I&E).
- Also, the growing external debt may also be frustrating the Federal Government into a financial strain. While Nigeria’s debt profile has become worrisome, with the declining oil price, the country’s reserves are the last resort.
A quick move by the CBN? The Central Bank may have predicted the imminent decline in external reserves as the recent policy moves by the apex bank suggest so.
- The most recent policy of the CBN is the planned Forex restrictions on milk importation and other dairy products.
- Despite the escalating criticisms concerning its policy to restrict FOREX for milk importation, the Central Bank appears ready to include milk and other dairy products as part of the 41 items under restriction.
- According to the apex bank, the restriction is a move to conserve between $1.2 billion and $1.5 billion spent by the country annually on the importation of milk and other dairy products.
Bottom line: While the decline in foreign reserves may not be considered a major movement, a continued fall in oil prices may largely affect the country’s external reserves and this puts the economy is a bad state.
In the meantime, if the Central Bank forges ahead to restrict FOREX for milk importation, it will slightly ease pressure on the country’s external reserves.