External reserves down consistently since October 2021
By Jeph Ajobaju, Chief Copy Editor
Foreign reserves dipped to $39.86 billion in February, a 0.44 per cent decline against $40.04 billion in January despite rising oil prices on the international market where Brent crude now sells above $110 per barrel.
Central Bank of Nigeria (CBN) tracker shows this is the fourth consecutive monthly drop in external reserves – since the $41.82 billion peak on 29 October 2021 – even as Vladimir Putin’s war against Ukraine reduces Russian oil supply to raise prices.
Foreign reserves decline due largely to foreign exchange (forex or FX) market intervention by the CBN to stabilise the naira. The CBN sells forex on the official market at a conservative rate to manage naira volatility.
CBN statistical bulletin for the third quarter of the year ended September 2021 (Q3 2021) showed it supplied $8.97 billion to the FX market through I&E, SME, and invisible.
It supplied $1.42 billion through interbank and $2.77 billion through bureau du change (BDC) operators between January and June 2021, before it stopped FX sales to them.
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High oil prices vs low external reserves
Crude oil market rally does not reflect on the external reserves of Nigeria, the world’s sixth largest oil exporter, even with the Russia-Ukraine war which has sent the prices of crude above record levels.
FX market intervention by the CBN is a major factor impeding the growth of reserves just as oil export revenue is affected by inability to meet production quota set by the Organisation of Petroleum Exporting Countries (OPEC), according to Nairametrics reporting.
OPEC increased Nigeria’s quota to 1.72 million barrels per day (bpd) for March 2022 from 1.7 million bpd in February and 1.68 million bpd in January regardless of the country’s inability to meet previous targets.
Decline in oil export earnings means reduction in FX which would have been used to shore up external reserves.
External reserves fell by $481.4 million in January 2022 to close at $40.04 billion, following a $666.2 million slash in December 2021.
About foreign reserves
Foreign reserves are assets held on reserve by the central bank of a country used to back up liabilities and influence monetary policy.
They include foreign banknotes, deposits, bonds, treasury bills, and other foreign government securities.
These assets serve many purposes but mostly ensure a government or its agency has backup funds if national currency rapidly devalues.
Foreign exchange reserves are also called international or external reserves.