Nigeria’s foreign reserve hits 10-month low

Nigeria’s foreign reserve has fallen to its lowest level in 10 months, standing at $34.74 billion, representing a year-to-date decline of $632.9 million (1.79%) as at Monday, 8th March 2021, according to latest data obtained from the Central Bank of Nigeria.

The last time Nigeria’s reserve position was at this level was 11th May 2020, exactly 10 months ago.

The foreign reserve has recorded a steady decline despite the recent bullish run in the global oil market. Brent Crude oil topped $70 per barrel earlier in the week before it slumped back to $65.57.

However, the persistent decline in Nigeria’s external reserve position can be attributed to the intervention of the CBN in the forex market to stabilise the exchange rate.

Despite these interventions, the naira endured a series of devaluations in 2020 and is currently trading at N412/$1 in the Importers and Exporters (I&E) windows.

Reacting to the decline, president of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe said that the decline of Nigeria’s external reserve despite the recent increase in oil prices was due to supply shocks and shortages of foreign exchange as a result of drop of forex inflow from various sources.

In the same vein, Odinaka Nwokonkwo, a treasury, and financial analyst suggested that the decline could be due to the payment of Nigeria’s $500 million Eurobond that reached maturity in January 2021. He stated that CBN also did FX swap with local and international counterparts which may have matured and needed to be paid down, consequently affecting the country’s foreign reserve.

Nigeria’s external reserve is very crucial in defending the naira and is used to cover the country’s huge import bills. An increasing external reserve suggests a higher inflow from crude oil earnings, foreign inflow from investors, and external loans.

Meanwhile, a look at the foreign trade report, shows that Nigeria recorded a N7.4 trillion trade deficit in 2020, owing to the disruptions caused by the covid-19 pandemic, which dipped the country’s export by 34.75%.