Nigeria’s external reserves have rallied and hit $45bn mark in May 2019. This is according to data obtained from the Central Bank of Nigeria (CBN) official website.
According to the CBN, on the 2nd of May, external reserves steadily rose to $44.7bn and then increased further to $45bn in less than 3 weeks. Specifically, in May, external reserves increased by $212.2m.
Breakdown: Nigeria’s external reserves started to decrease since September 18th, 2018. This was the last stood at $ 45bn. It then depleted ever since, hovering around $41bn and $44bn. Further analysis shows that fluctuations in external reserves have been largely due to the movement in Oil prices.
Oil prices rebounded to $73p/b over the last five months, following the year low that was recorded in January. Recall that oil price was as low as $53.21 as at January 2019, but steadily rose to the $70p/b in mid-April, thanks to the Organisation of the Petroleum Exporting Countries‘s (OPEC) move to cut oil supply in order to boost prices.
Further rise in External Reserves amidst crises: Analysts have earlier predicted that oil price will hit $70 per barrel in 2019. Similarly, Nairametrics recently predicted that Nigeria’s external reserves will hit $45bn mark. As oil prices are expected to continue its bullish run amidst rising tensions in the Middle East, coupled with the new International Maritime Organisation (IMO) rules, Nigeria’s reserves will maintain its accumulation. This will, in turn, give further leverage to Naira.
Oil prices rose to multi-week highs on Monday after OPEC indicated it could maintain production cuts that have helped support prices so far this year. Meanwhile, tension continues to escalate in the Middle East, further bolstering global oil prices.
Reuters reported that the Saudi Energy Minister, Khalid al-Falih, said on Sunday that there was a consensus among the Organization of the Petroleum Exporting Countries (OPEC) and allied oil producers to drive down crude inventories “gently”. He also stated that he would remain responsive to the needs of a “fragile market”.
Last week, Oil prices rallied after the facilities of Saudi Aramco suffered a major setback when explosive-laden drones attacked two pumping stations belonging to the state-owned oil company. Report indicated that following the attack on Saudi Aramco pipeline, oil prices have jumped.
Hence, Nigeria’s reserves which largely depend on oil price revenue is expected to exceed the $45bn mark soon, as oil prices continue to rally.
The input of whistleblowing cashflows: On the other hand, improvement in reserves have also been attributed to the funds recovered by the Presidential Initiatives on Continuous Audit (PICA) activities. Reports show that the sum of N603.78bn has so far been recovered since the inception of PICA in 2016.
According to the Minister of Finance, Mrs. Zianab Usaman, the country has saved N8.03billion from the recovered funds.
Upshots: The rise in external reserves implies that the stability of the naira is expected to continue in the long run. In 2018, the Central Bank of Nigeria (CBN) sold a whopping $36.6 billion in forex. When compared to the $15.8 billion sold in 2017, there is a whopping 130% rise. While explaining the reason for the high volume of transactions, the CBN stated;
“THE INCREASED VOLUME OF TRANSACTIONS IN 2018 WAS ATTRIBUTABLE LARGELY TO THE BANK’S FOREIGN EXCHANGE POLICY AND ITS MANAGEMENT, COUPLED WITH THE IMPROVEMENT IN THE LEVELS OF FOREIGN RESERVES DURING THE YEAR.”
With the reappointment of the CBN Governor, Mr. Godwin Emefiele, the I&E window is expected to enjoy some level of stability. The Governor recently stated that Nigeria’s reserves can finance nine months import.
“NIGERIA’S CURRENT STOCK OF EXTERNAL RESERVES CAN FINANCE NINE MONTHS OF CURRENT IMPORT COMMITMENTS.
“WITH IMPROVED AVAILABILITY OF FOREIGN EXCHANGE, THE EXCHANGE RATE AT THE I&E FX WINDOW HAS REMAINED STABLE OVER THE PAST 24 MONTHS AT AN AVERAGE OF N360/$, AND THE PARALLEL MARKET EXCHANGE RATE HAS APPRECIATED FROM N525/$ IN FEBRUARY 2017 TO N360/$ TODAY.”