Pressure on External Reserves Shaves Off $234.81 Million in 7 Days
- Reserves May crash below $38 Billion mark – Analyst
As pressure continued to mount on the Nigeria’s external reserves, the country’s hard currency vault depleted by $234.81 million in one week.
The pressure emanates from heavy forex demands for importation across various sector as well as the weak competitive power of the naira against the dollar.
Consequently, the reserves slid to $39.07 billion as at 11 May 2022, data obtained from the Central Bank of Nigeria (CBN) has shown.
Activities in the foreign exchange market also closed last week with negative impact on the naira as the currency depreciated by 0.5% and 1.7% to N419.00/$1 and N599/$1, at the I&E window and parallel market, respectively.
Expert express worries
With depreciation of naira likely to continue as a result of rising demand for foreign exchange, Nigeria’s external reserves may fall to $38 billion in the coming weeks given that the apex will sustain its intervention in the forex market.
Financial Derivatives Company (FDC), which made the prediction in a presentation by its Chief Executive Officer, Mr. Bismarck Rewane, at the Lagos Business School (LBS) Executive Breakfast Session, last week, stated that “forex demand pressure is expected to increase as manufacturers intensify stockpiling ahead of election,” adding that “further depreciation of the naira will likely continue.”
It noted that with Nigeria not benefitting from higher oil prices due to sub-optimal production, occasioned by operational challenges, such as vandalism and oil theft, the country’s external reserves resumed steady depletion towards the end of April, falling to $39.62 billion (nine months of imports).
The FDC also projected that the parallel market rate of the naira, which was up 1.09 per cent to N588/$ in April “would likely cross N600/$ as election spending commences.”
Business Metrics’ analysis of latest data from the Central Bank of Nigeria (CBN) shows that the nation’s external reserves dropped by $735.30 million between April 21 and May 11, 2022.
Specifically, the external re-serves which stood at $39.81 billion on April 21, maintained a downward trend to fall to $39.07 billion on May 11, 2022. In its “Nigeria Staff Report for the 2021 Article IV Consultation” report published in February, the International Monetary Fund (IMF) had said Nigeria’s external reserves could fall to $29.1 billion by 2024 on the back of lower oil prices, restricted Eurobond market access and higher capital outflows.
The report said: “Nigeria’s external position is assessed to be weaker than warranted by fundamentals. External buffers are limited, with FX reserves projected to remain below 100 percent of the IMF’s ARA metric in the medium term.
“Given still significant naira asset holdings of FPIs, estimated at $16.9 billion as of September 2021, Nigeria remains vulnerable to capital outflow pressures notwithstanding the authorities’ steady clearing of FX payments backlogs to FPIs. “Further drains on FX reserves could come from existing FX swap arrangements for which details were not available.”