Nigeria’s foreign reserves declined to $27.823bn in the last two months, a drop of $1.28bn or 4.39 per cent when compared to $29.101bn it stood as at December 31, 2015.
Data obtained from the Central Bank of Nigeria, CBN’s website showed that in February, the reserves was down 1.2 per cent to $27.823bn, from $28.161bn as at January 29, 2016.
The persistent decline could be attributed to the nation’s dependence on oil for over 90 per cent of its foreign exchange earnings makes its capital account vulnerable to the fluctuations in crude oil prices.
The CBN said that the reserves declined to $29.13bn as at December 29, 2015, representing 2.43 per cent from $29.31bn recorded as at December 23, 2015.
The foreign reserves have been dropping since July 1, 2015. The nation’s external reserves stood at $34.49bn as at January 5, 2015 from the $34.47bn recorded in December 31, 2014.
But shortages of US Dollar has forced the external reserves into a massive decline hitting a new low of $29.73 as at December 11, 2015 while the value of the naira declined in the unofficial foreign exchange market.
The CBN had spent around five billion dollars between January and July defending the naira, which was hit by the 2014 plunge in oil prices.
In November, the apex bank said it was able to save $300m as at August from Bureau De Change, BDC, through its provision that request for forex must be accompanied by the BVN of the customers.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who had earlier this month predicted that the external reserves would fall to $32bn in March, noted that the depletion of the reserves was the more reason why the rDAS had to be scrapped.
“It is going to go lower than that and there is no question about that, because there is demand for foreign exchange. That is the more justification for a steeper devaluation of the naira. If the demand for something is high, you increase the price so that people will reduce demand,” he said.
Analysts at BGL Plc had in January said the country’s external reserves might drop below $30bn by the end of the second quarter of this year if the oil price trend continued below $65 per barrel.
“The reserves are just a cushion. The cushion only increases when you have surpluses. We don’t have those surpluses right now. We are dealing with just making do with what we have. So we shouldn’t be talking about reserves now. We should be talking about how to reduce that which we are spending,” Rewane had said two weeks ago.
The BGL analysts, in their economic report detailing the outlook for 2015, had stated that the unfolding oil price scenario and the consequent exchange rate depreciation would further put pressure on the external reserves over the next few months.
This, in addition to its high import bills contributed to the fluctuations in the level of reserves over the years and consequently the way the reserves are being managed.
However, during the oil boom of the mid-seventies which has resulted in the build up of reserves, the external reserves were diversified into an array of financial instruments including foreign government bonds and treasury bills, foreign government guaranteed securities, special drawing rights (SDRs), fixed term deposits, call accounts and current accounts.
This provided significant investment income as well as liquidity. However, during the glut in the global oil market which led to collapse in the crude oil prices and consequently a drawdown in the reserves, the reserves were held mainly in current accounts and treasury bills.
This underscored the need to diversify the sources of foreign exchange inflow of the country.