LAGOS— Nigeria’s foreign reserve has recorded 18.2 per cent accretion since its recent uptrend, standing at $27.4 billion with the latest figures from the Central Bank of Nigeria, CBN, for January 2017.
The uptrend which began October 20, 2016 had persisted with minor pullbacks recorded on November 1, 2016 and December 14, 2016, reversing the over one-year persistent decline which bottomed out at $23.2bn on October 19, 2016.
In the 12 weeks upward trend, the reserve added $4.2 billion as against $8.6 billion it had lost since President Muhammadu Buhari came into power in 2015. The latest figure of the reserve is also on 10 months high over the last one year while indications are that accretion would continue on the back of improved oil revenue.
The month-on-month trend shows an incredasing tempo in the month of January 2017 when it garnered $2.002 billion, a huge 7.9 per cent rise. December 2016 accretion was $1.025 billion, about 4.2 per cent rise while November recorded accretion of $840 million, about 3.6 per cent rise.
The uptrend was largely as a result of the rises in the international oil price (Nigeria’s major foreign exchange earner) in the recent month especially in January when it settled above $55 per barrel, as against last year’s average of $43 and 2015 average of $38.
The positive development in the international oil price began mid last year but Nigeria could not benefit much from it due to worsened militancy in the Niger Delta which curtailed oil production and exports with output at a record low of about 1.4 million barrels a day.
However, the positive development could not roll back the massive exchange rate pressure which had come on the Naira since last year. Eventually the Naira/USD value crashed beyond N500/USD1 this week as supply of foreign exchange remained elusive.
Also the positive development in the external sector seems not to have resonated with the revenue pressure the federal government has been experiencing since 2015.
In addition to over N400 billion the government had borrowed from the money market in the month of January 2017, it plans to raise $300m (almost N100bn) by selling a Diaspora Bond targeting Nigerians living abroad. The bond, which will have a maturity of five to seven years, is expected to be issued by June this year.
Nigeria has asked Goldman Sachs and Stanbic IBTC Bank, the local unit of South Africa’s Standard Bank, to advise it on the sale of the maiden bond. It also appointed United Bank for Africa and First Bank of Nigeria as advisors on the deal.
The government is also pressing on with its request on the National Assembly to approve its external borrowing plan targeting $30bn (about N10tr).
The potentials of a country’s foreign reserve is defined by how many times it can cover the country’s average monthly imports bill i.e how many months a country’s total imports expenses can be covered if no earnings are coming in. It is believed that 6 months is qualified as being very good.
The growth of our Foreign Reserves will mean an increase in the capability of the government to foot our monthly FX needs for the different sectors of the economy i.e Manufacturing, Education, Food & Beverages e.tc. This means the Federal Government will be able to fund the purchase of raw materials required by Manufacturers, the purchase of goods for Trading Companies; this will cause a boost in the economy by increasing output, creation of jobs for the citizens.
Furthermore there will be a reduction in exchange rate, between the official & parallel markets, since the demands for FX will always be met by the supply from the government, thus the impact of the parallel market will be greatly reduced, thereby causing a natural drop in exchange rate.