IMF Foresees Nigeria’s Foreign Reserves Falling to $32bn

By Dipo Olowookere

The International Monetary Fund (IMF) has warned that if care is not taken, the foreign exchange reserves of Nigeria may decline to close to $32 billion in 2020.

The international lender made this projection in a press statement released recently. It further said the crash in the price of crude oil at the international market since the beginning of this year would be the major factor for this.

Nigeria generates almost 90 percent of its forex earnings from the sale of crude oil and the decline in the price of the commodity puts a huge strain on the country’s revenue.

Business Post reports that as at Wednesday, April 1, 2020, the external reserves of Nigeria stood at $35.2 billion.

In its press statement, IMF said though it expects the reserves to hit the $32 billion region this, the FX reserves will average at $34 billion in the year.

“We now see FX reserves further declining to close to $32 billion in 2020, but averaging $34 billion in 2020-2023 as the oil price rebounds in the later years,” the IMF said.

It further said, “Lower FX inflows tied to lower oil receipts into Nigeria are also likely to present policy challenges for the Central Bank of Nigeria (CBN) in the near term with regard to exchange-rate and foreign-exchange-reserve policy.

“In the face of declining foreign-currency reserves and global risk aversion, non-resident investors holding CBN bills may choose to reduce their holdings and exit, leading to a fall in FX reserves.

“In addition, the turmoil in global markets is likely to delay the government’s international issuance plans in the near term, further starving the country of FX inflows.”

While commenting on the nation’s currency, the global lender said, “Since partially liberalizing the Nigerian naira (through the Nigerian Autonomous Foreign Exchange Fixing Mechanism [NAFEX]) in April 2017, the exchange rate has depreciated only marginally and the CBN has tried to stem depreciation.

“In March the central bank lowered its official exchange rate by about 15 percent, the first move on the official rate in over two years.”