The country’s external reserves have been on a downward trend in recent weeks mainly due to decline in oil prices. Data obtained from the Central Bank of Nigeria (CBN) shows that the reserves stood at $44.5billion as at August 14, 2019 compared with $45billion a month earlier.
In a report obtained by Newsfieldglobal at the weekend, the FDC also forecast that the country’s oil revenue would drop to $9-$10billion in the third quarter of this year even as it predicted that oil prices will hover around $60-$62 in this month.
Oil exports still account for over 90 per cent of Nigeria’s foreign exchange earnings and any significant decline in the commodity’s price usually leads to a reduction in the country’s forex buffers.
CBN data, for instance, shows that the nation’s external reserves fell by $166million last month.
For instance, the data indicates that the reserves, which stood at $45.07billion as of June 28 and increased to N45.15billion on July 5, steadily declined to close at $44.90billion on July 31. This means that the country’s external buffers fell by $166.42million during the period.
Newsfieldglobal analysis of the CBN external reserves data also shows that the reserves declined by $53.36million in June.
Specifically, the reserves, which stood at $45.12billion as of May 31, dropped to $45.07billion as of June 28.
Commenting on the decline in the external reserves for the month of June, analysts at FBNQuest Research attributed it to a slowdown in inflows from Foreign Portfolio Investors (FPIs) on the Investors’ and Exporters’ window (NAFEX).
They said: “Gross official reserves declined by $50million in June to $45.07billion. We suspect that this modest decline was driven by a slowdown in inflows from foreign portfolio investors (FPIs) on the investors’ and exporters’ window (NAFEX): these amounted to $1.10billion in the four weeks of June, compared with $1.34billion in the previous month.”
The analysts further noted: “Nigeria’s stated reserves provide cover for 13.3 months of merchandise imports at 2018 levels, and 7.5 months when we add services.”
Similarly, in its monthly economic and financial markets outlook report released recently, FSDH Research attributed the recent decline in the external reserves to the fall in oil prices.
The report read in part: “The average price of Bonny Light in July 2019 stood at $66.24/b compared with the average of $66.52/b in June.
“However, in the last few days, crude oil price has dropped below $60/b as a result of trade tensions between United States and China which have impacts on the global economy. This may have negative impacts on revenue and other key prices in Nigeria.
“The external reserves continued on its downward trend in July 2019. The decrease in the external reserves may be attributed to lower crude oil prices and lower Foreign Portfolio Investors inflows.”
However, despite the decline in the external reserves, the CBN has sustained its interventions in the forex market, thereby ensuring exchange rate stability in the system.
Over the weekend, the naira exchanged at 360 to the dollar, the same rate it had largely traded at over the last 12 months. It traded against the pound sterling and the euro at N448 and N398, respectively.
A dollar shortage initially triggered by a slowdown of foreign inflows after local debt market yields declined, coupled with falling oil prices, had put the naira under pressure on the I&E forex window in recent weeks.
Last Friday, the naira eased to 364 per dollar at the I&E window from a quote of 363.50. It also traded at 364/$ last Thursday on thin liquidity.
