Nigeria’s external reserves dropped by $2.71 billion from $38.07 billion as of the end of 2019, to $35.4 billion as of December 30, 2020, findings by New Telegraph show. According to data obtained from the Central Bank of Nigeria (CBN), the $2.71 billion represents a decline of 7.13 per cent.
The figure, however, is lower than the $4.47 billion drop recorded by the external reserves in 2019. In fact, by ending 2020 at $35 billion, the reserves have defied market predictions, given that some analysts had predicted at the beginning of last year that the CBN’s forex buffers would have dropped to about $31 billion by the end of the year. Specifically, in a report released in January last year, analysts at ARM Investment Managers stated: “We see the FX reserve ending H1 2020 at $34 billion and H2 2020 at $31 billion.”
Still, an analysis of CBN’s external reserves data shows that the forex buffers headed south for most part of last year due to the sharp drop in the price of oil (the commodity that accounts for about 90 per cent of Nigeria’s export earnings) as well as the impact of the coronavirus (COVID-19) crisis. For instance, in January 2020, the reserves stood at $38.5 billion before falling to $36 billion in February and March.
However, they increased from $33.52 billion as of April 30, 2020, to $36.59 billion as of May 29, 2020 due to the $3.4 billion in emergency support that the country obtained from the International Monetary Fund (IMF) to help tackle the effects of coronavirus.
Surging demand for forex, coupled with low foreign capital inflows into the Nigerian economy, however, meant that the IMF loan was not sufficient to prevent the reserves from quickly resuming their downward slide.
Indeed, in recent times, it was only last month that the country’s external reserves recorded their longest upward streak as they rose from $34.8 billion on December 17 to $35.4 billion as at December 30, 2020. This means that the reserves increased by $531.3 million during the period.
Analysts attribute the current reserves accretion to the recent increase in the price of oil occasioned by the distribution of COVID- 19 vaccines in some of the world’s advanced economies. According to data obtained from CBN’s website, the price of oil stood at $51 as of December 31, 2020, as against $24 per barrel earlier in the year. Analysts point out that the gradual increase in the level of the reserves gives CBN enough firepower to defend the naira, which was under pressure throughout last year. New Telegraph reported a fortnight ago that as part of its efforts to ensure a stable exchange rate, CBN sold foreign exchange amounting to $18.35 billion to authorised dealers between January and September last year.
The figure is 62 per cent ($11.37 billion) less than the $29.72 billion that the regulator sold to authorised dealers in the corresponding period of 2019. The report also showed that when compared to 2019 figures, the apex bank’s forex sales only headed north in Q1 2020 as it was trying to conserve its forex reserves.
It would be recalled that in his address at last year’s Annual Bankers Dinner held by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos on November 27, 2020, CBN Governor, Mr. Godwin Emefiele, said that the country’s external reserves, which, according to him, stood at $35 billion, were sufficient to cover seven months of imports of goods and services.
He pointed out that like other emerging market countries and countries that rely on earnings from oil exports, the decline in crude oil earnings, as well as the retreat by foreign portfolio investors, significantly affected the flow of foreign exchange into Nigeria.