Nigeria’s External Reserves Depreciated by $1.37bn in Six Months

Nume Ekeghe

Despite the increasing price of crude oil, Nigeria’s external reserves depreciated by $1.37billion or 3.37 per cent in the first six months of 2022 to $39.16billion as of June 30 from $40.52 billion it closed in 2021, data obtained from the Central Bank of Nigeria (CBN) daily reserves’ movement has revealed.

External reserves are assets held on reserve by CBN in foreign currencies and these reserves are used to back liabilities and influence monetary policy. 

The foreign exchange buffer of the CBN in January was hovering at an average of $40 billion and later slide to $39 billion in three months (February- April) consecutive before reaching $38 billion in May 2022.  

The CBN data revealed that it remained flat at $38billion in June and eventually closed at $39.16billion on June 30, 2022. 

THISDAY analysis of the CBN data revealed that external reserves in January dropped by $481.4million or 1.19per cent to $40.04billion, while in February, it declined by $121.4million or 0.30 per cent to $39.86billion.

The external reserves in March were down by $317.8 million or 0.79 per cent to $39.55 billion and in April, the external reserves gained $41.5million or 0.1 per cent to $39.58 billion from $39.54 billion it commenced the month under review. 

Interestedly, the external reserves were down by $943.07million or 2.39 per cent to $38.48billion, the highest decline in 2022, and eventually appreciated by $674.4million or 1.75 per cent to close at $39.16billion in June 2022.  

The decline in external reserves is coming on the backdrop of a steady increase in global oil prices as gas costs soar amid fears of a global economic shock from Russia’s invasion of Ukraine.

According to the CBN, daily crude oil price in six months of 2022 appreciated by 70.3 per cent or $53.62 per barrel to $129.87 from $76.25 per barrel reported on December 31, 2021. 

Experts expressed that the current crisis in Niger-Delta relating to oil theft might be responsible for dwindling production, a major contributing factor impacting on external reserves growth on the backdrop of increase in global oil prices.

They noted that the increasing CBN’s intervention in the foreign exchange market is also a contributing factor.

The International Monetary Fund (IMF) had warned that Nigeria’s external reserves could fall to $29.1billion by 2024 on the back of lower oil prices, restricted Eurobond market access, and higher capital outflows.

According to the report, the country’s foreign position is weaker as foreign buffers are limited.

The Washington-based lender said, “High interest payments relative to fiscal revenues expose Nigeria to interest rate and growth shocks.”

A member of the CBN’s Monetary Policy Committee (MPC), Mike Obadan, who is a Professor of Economics, University of Benin during the May 2022 meeting in his personal statement noted that, “In light of the foregoing, the Nigerian economy has continued to exhibit features which make monetary policy choices difficult for the policy makers, in particular, the monetary authority. 

“Two of these features are fragile economic growth and escalating inflation. Others are high and unstable exchange rate, uncomfortable external reserves levels (the stock at $ 38.61 billion in April, 2022 covers 7.2 months of import of goods and services), crude oil export regime which does not yield accretion to external reserves, weak capital inflows and balance of payments position, bourgeoning fiscal deficits and associated high domestic and external debt, both of which gulp a significant proportion of government revenue in debt servicing, among others.”

Mr Robert Asogwa, who is a member in his personal statement at the end of March 2022 meeting had said the large oil thefts in the Niger Delta Region has diminished the possible benefits to the country as oil production level has dropped consistently. 

“However, the current level of reserves is still adequate to shield the economy against external vulnerabilities,” he added.

The Former President Chartered Institute of Bankers of Nigeria, President, Prof. Segun Ajibola noted that the dwindling external reserves to the crisis in Niger-delta and sustained foreign exchange interventions by CBN.

He said: “Nigeria is having a peculiar oil theft challenge in the Niger-Delta and that is affecting our daily production quota. Government is still trying to confront pipeline vandalises, causing confusion at the points of production which is expected to have a negative impact on the country’s ability to meet the OPEC quota allocated to Nigeria.”

He explained further that: “Most of Nigeria’s oil transactions are paid for most times in 90-day times- it is called forward transactions. In some cases, we go into a swap agreement whereby those that refined products for Nigeria are paid back through crude oil. It means we are not selling but exchanging through crude oil.

“When we do forward transactions, the money does not reflect in the external reserve immediately. Those are the complicated issues in the global market that most people will not understand. Common man on the street will expect the steady hike in global oil price to impact on our external reserve but the underline challenges might delay it.”