By Modupe Gbadeyanka
The recent free-fall in the foreign exchange (forex) reserves of Nigeria has continued to be a major source of worry for observers and analysts.
Some would have thought that with the rising price of crude oil in the global market, Nigeria, which depends solely on the export of the commodity to earn forex, would have had its external reserves swelling especially with the over $20 it gains for every barrel of crude oil sold.
In the 2018 budget, the Africa’s largest economy put its oil benchmark at $50.50 per barrel and the ‘black gold’ sells for over $70 per barrel at the moment.
In their daily report, analysts at FBNQuest Research expressed worry over the decline in gross official reserves by $2.31 billion in October to $42 billion.
They attributed the fourth monthly decline in succession to changes in the sentiment of foreign portfolio investors (FPIs) in the wake of the headwinds driven by US monetary policy.
In the report, the analysts said the Central Bank of Nigeria (CBN), a consistent buyer, has now become a source of forex at the investors’ and exporters’ window (NAFEX), stating that for the last eight weeks for which the data is available (through to 22 to 26 October), it has been the largest source of such inflows.
“Reserves at end-October covered almost 16 months’ merchandise imports, and nine months when we include services on the basis of the balance of payments to June 2018. This remains healthy cover by any criteria.
“We should address the million dollar tabloid question: what if all FPIs exited? This is a fanciful idea, given the yields on offer and the oil price. We estimate a fall to a little above $25 billion, the level of reserves in Q2 2016,” the report said.
Adedapo Adesanya