By Dipo Olowookere
There is an unease among observers of the Nigerian economy over the fast rate the nation’s external reserves are declining in recent times.
Recall that last month, Business Post raised an alarm over the issue and projected that it was only a matter of few days before the reserves fall below $38 billion and hit the $37 billion region.
Days after our report, the account, which holds foreign earnings generated by Nigeria as well as issued Eurobonds, has reduced and as at the close of business on Monday, February 10, 2020, what is left is about $37.4 billion, going by data obtained by Business Post from the Central Bank of Nigeria (CBN).
It was observed that the reserves went down to its present level from $37.6 billion last Friday and $37.7 billion last Thursday.
As at January 31, 2020, what was held in the account was $38.0 billion and by Monday, February 3, 2020, it had dropped to $37.8 billion. It means in less than two weeks in the month of February 2020, the foreign reserves have declined by about $600 million.
The recent decline in the price of crude oil at the international market has not helped Nigeria’s determination to generate more revenue. The commodity has been the main source of foreign earnings for the largest producer of oil in Africa. The country also prides itself as the giant of continent with also the largest economy.
In the 2020 budget, the federal government fixed oil benchmark at $57 per barrel, with production of crude oil at over 2 million barrel per day.
However, the deadly coronavirus has put a dent to these projections, with the Brent, under which Nigeria’s oil is priced, is selling below $54 per barrel, while the Organisation of the Petroleum Exporting Countries (OPEC) has taken steps to ask its members to further reduce the volume of oil they produce in order to keep prices higher.
It is being speculated that Nigeria may be forced to further cut its present output cap of 1.7 million barrels per day if the proposed 600,000 barrels per day additional ceiling is agreed by members of the cartel.
At the moment, Russia, one of the key members of the group, is not okay with this decision, leaving the commodity to continue to bleed at the global market.
If prices continue to trade down and the CBN maintains its weekly intervention at the local foreign exchange market, the reserves will continue to dry up and may pull the country into another recession in five years. The apex bank may also be forced to devalue the Naira, which the present government of President Muhammadu Buhari is opposed to.
For now, observers will continue to watch and see the direction things go.
Adedapo Adesanya