External reserves dip from $41.19b in Nov and $41.82b in Oct
By Jeph Ajobaju, Chief Copy Editor
External reserves reduced to $40.5 billion on December 23, a dip from $41.19 billion in November and $41.82 billion in October.
Foreign exchange reserves reached $44 billion between August and September 2019. They have since gone through cycles of falling and rising at lower levels without coming close to that mark two years ago.
The latest data, released by the Central Bank of Nigeria (CBN), shows one of the worst runs since 2019 even though it is an improvement on $34.9 billion in the fourth quarter of 2020 (Q4 2020).
Foreign exchange reserves are also called international or external reserves.
The International Monetary Fund (IMF) says “international reserves (or reserve assets in the balance of payments) are those external assets that are readily available to and controlled by a country’s monetary authorities.”
In other words, a country’s foreign reserves are the amount of money it has to pay for import of goods and services.
Nairametrics reports that the major reasons for the growth in external reserves between Q4 2020 and Q4 2021 are rising oil prices, increased oil sales, higher external loans, and a marginal increase in foreign inflows.
However, naira exchange rate against the dollar fared worse in 2021 especially in the black market, and is likely to close at around N570/$1 in Q4 2021.
It had seemed at some point in November and early December that the exchange rate could strengthen to between N540 and N555 to the dollar.
The inability of naira exchange rate to hold favourably can be traced to the sliding external reserves.
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Two-year high
External reserves hit a two-year high of $41.8 billion on October 29 as inflows from oil sales and external loans boosted foreign exchange (forex) balances. However, the slide began on November 2 and has not abated since.
External reserves had grown for 50 consecutive days between August 24 and October 27, adding $8.4 billion to the balance.
In contrast, they declined for 40 consecutive days between October 29 and December 23 when Nigeria lost $1.24 billion in net outflows.
Rising and falling
External reserves saw three major surges:
- $785.8 million – September 30
- $620.5 million – October 8
- $566.4 million – October 15
They experienced two major declines:
- $157 million – October 12
- $604.6 million – November 29
Going forward
Nairametrics reports that Nigeria will likely close external reserves in 2021 at around $40 billion. That means the country is yet to reach the level between August and September 2019 when the figure was $44 billion.
A lot of forex inflows which will typically accrue through official channels pass through unofficial sources like the black market.
The deliberate CBN policy of not implementing a full float of the exchange rate is also viewed negatively by forex traders who prefer to dump it for unofficial sources.
There may not be any improvement in forex if the policy continues. But there may be occasional swings as external reserves run the cycles of inflows and outflows.