Nigeria’s external reserves has suffered a massive decline to a 10-month-low as the Central Bank of Nigeria, CBN, increased funding of the foreign exchange market to stabilise the naira.
The reserves have come under pressure amid falling revenues from crude oil prices due to industrial scale theft from pipelines and illegal exports as well as foreign portfolio investment outflows.
The reserves plunged from the peak of $48.9bn attained on May 2, 2013 to $41.8bn on February 14, a depreciation of $7.062bn.
According to CBN data, the reserves which stood at $43.6bn at the beginning of this year have been on the downward movement declining by $1.8bn.
The naira maintained its value of N155.75 to a dollar at the regulated Retail Dutch Auction System as the CBN supplied a total of $800m last week, while it dipped by N2 to close at N170.50 at the bureau de change segment.
The Accountant General of the Federation, AGF, Mr. Jonah Otunla on Friday said that excess crude account has dropped to $ 2.1bn from $11.5bn in December 2012. The CBN Governor, Mallam Lamido Sanusi had last week said that his biggest headache is the threat to the exchange rate at a time when oil prices are in excess of $110 per barrel and when the country has current account surplus.
He said, “The central bank is not looking for a strong naira. We are not looking for a weak naira, we are simply looking for a stable naira. In a normal world, I should be resisting an appreciation of the currency today and not fighting depreciation.
“We are having a problem that is entirely home-grown. People are literally taking crude oil physically; refining and taking it out in vessels and not paying for it, plus all other leakages in the system.”
The governor pointed out that as at December 31, 2013, the country’s gross external reserves was about $42.9bn, representing a decrease of about $98m, or 2.23 per cent when compared with about $ 43.8bn recorded at end- December 2012.
Attributing the shrinking reserves level to a slowdown in portfolio and foreign direct investment, FDI, flows in 4th quarter of 2013, the governor said this resulted in increased funding of the foreign exchange market by the CBN to stabilise the currency.
He, however, warned that the depletion of the ECA was a risk to exchange rate stability and other economic indicators. “This absence of fiscal buffers increased our reliance on portfolio flows thus, constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price,” he said.
He condemned the continuous fall in revenue from oil despite stable price of oil and production in 2013, though it acknowledged the incidence of output losses due to theft and vandalism.
The CBN governor has at the end of the last Monetary Policy Committee Meeting held in January said oil revenue losses were undermining the ability of the CBN to sustain exchange rate stability, urging the fiscal authorities to take steps to block revenue leakages and rebuild fiscal savings needed to sustain confidence and preserve the value of the naira.
According to him, “2014 will be a difficult year, as a result of a number of external reasons. It will be tough for the CBN and the fiscal authorities, particularly with the election coming up in 2015.
But as the inflows begin to slow down, we need to retain our oil revenues; we need to stop the theft and the vandalism and the leakages and save the money to build reserves.
“One of the good things about not having a lot of money in the ECA is that there would not be much ammunition to spend (during elections) since the money is not there. In the monetary policy perspective, there isn’t too much fiscal fire power available.
“Monetary policy has limits. Beyond a point, something has to give. There is a limit MPR and CRR can go. Beyond a point, one has to allow the Naira drop.
And the consequences of that are clear on stock market, inflation, banking system.
So, we have a stability that is very good, but fragile. But, we can make it strong, by improving our fiscal position and building up of our reserves,” Sanusi had said. But the Financial Derivatives Company Limited (FDC) noted in its latest economic bulletin that there has been increased currency pressure since the removal of the limit on dollar sales to BDCs.
“A depreciating naira and depleting external reserves will have a negative impact on the non-food basket,” it stated.