FDC: External reserves to slide below $43bn

Nigeria’s foreign exchange reserves will fall to $42 billion this month, analysts at Financial Derivatives Company Limited (FDC) have projected.


The analysts stated this in the September edition of the firm’s “Lagos Business School (LBS) Breakfast Session” presentation obtained by New Telegraph at the weekend.


According to the presentation by the Chief Executive Officer, FDC, Mr. Bismarck Rewane, the projected drop in external reserves will be caused by lower oil prices as well as “increased activities at the Investors and Exporters’ (I&E) window.”


Latest data obtained from the Central Bank of Nigeria (CBN) shows that the country’s external reserves have continued on the downward trend.


As at September 4, 2019, the reserves stood at $43.19 billion, indicating a decline by $419.13million since August 30, 2019 when it dropped to a five-month low of $43.61billion.  


The external reserves have been on a downward trend in recent months, falling, for instance, from $45.18billion on June 10, 2019 to $44.90billion on July 31.


Financial experts attribute the decline to recent downward trend in oil prices, as well as lower foreign portfolio investment inflows.


But, according to the FDC analysts, the over $9billion UK court judgment secured by an Irish firm, Process and Industrial Development Limited (P&ID), against the Federal Government for contract violation, could result in further depletion of the country’s external reserves.


The analysts stated that the $9billion awarded against the Federal Government, which according to them was not “unusual,” accounted for 20.55 per cent of the nation’s dollar buffers and would “likely depress the external reserves further.”


They also projected that with the reserves heading south, the naira would depreciate to between N362 and N363 per dollar.


In a recent note, analysts at Cowry Asset Management Limited had predicted that the naira would likely depreciate against the dollar across the different forex market segments last week.


Although the analysts did not provide the exact margin by which they expect the naira to decline against the dollar, they noted that while the local currency closed flat against the greenback across market segments in the upper week, it was likely to weaken last week, “amid decreasing external reserves.”


Commenting on measures recently adopted by the CBN to boost economic growth even as it tries to maintain exchange rate stability, Fitch Ratings stated  that “the competing goals of preserving naira stability and supporting Nigeria’s fragile recovery are pushing the CBN towards increasingly complex policy measures, with a risk of aggravating external vulnerability or causing macroeconomic distortions.


“We expect the CBN to continue to pursue a combination of tight liquidity management, segmented exchange-rate markets, and foreign-exchange interventions and restrictions. It will be aided by ample international reserves of more than six months of expected 2019 current account payments, and a small current account surplus conditional (we estimate) on Brent prices averaging at least $60 a barrel.”


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