Latest figures from the Central Bank of Nigeria, CBN, shows that the country’s external reserve has lost a total of USD5.5 billion this year, up to last weekend, with September figures showing a third quarter loss of USD1.9 billion, significantly higher than USD1.5 billion lost in the preceding quarter (second quarter 2016), despitee higher exchange rates. The external reserve which mirrors a nation’s financial health in respect of foreign trade, opened this year at USD30 billion but closed last weekend at about USD24.5 billion, barely enough to cover three months import bill, the international reserve adequacy border line.
The latest figure indicates a Year-to-Date, YtD, depreciation of -22.4 per cent. The second quarter figures had shown a YtD depreciation of 18.3 per cent. The first quarter of this year had recorded the fastest decline in reserve, dipping by USD2.1 billion, but the second quarter showed a considerable slow down at USD1.5 billion before a renewed increase in the pace of decline.
Financial analysts had attributed the development to lower export earnings from crude oil coming against huge demand for foreign exchange at the official interbank foreign exchange market. This situation, according to them, couples with lack of foreign exchange inflow from foreign investors and other independent sources.
The development has also put pressures on the exchange rate at both the official interbank and more in the parallel market segment, forcing a massive depreciation of Naira in both markets throughout the third quarter of 2016. As at last weekend, Naira remained pressured as a result of illiquidity in virtually all segments of the foreign exchange market as the Naira/Dollar exchange rate at the parallel market crashed to an all-time low of N490.00/US$1.00 on Friday, compared to N440.00/US$1.00 on Monday, and N310/ US$1.00 at the beginning of the quarter. A foreign exchange dealer in one of the commercial banks reacting to this development, told Vanguard: “The apex bank’s attempt to centralize the inflow of foreign exchange to official channels, continues to constrain supply of foreign exchange to the markets. “There has not been strong response in terms of foreign exchange inflow from foreign investors to the CBN’s new foreign exchange regime, which had aligned with the wishes of investors.”
The apex bank’s restriction on free trade in foreign exchange by unauthorized persons came with a directive suspending unregistered International Money Transfer Organisations, while threatening to sanction individuals operating as international money transfer agents. However, the exchange rate at the interbank has remained broadly stable as a result of frequent interventions by the CBN. The Naira/Dollar spot rate opened last week at N308.50/US$1.00 on Monday but depreciated to N312.99/US$1.00 by midweek. In the futures market, investors continue to take advantage of the Over-the-counter, OTC, foreign exchange Futures contract to hedge exposures to the Nigerian market in a bid to limit currency movement risk.
Accordingly, the total value of open OTC FX Futures contracts rose by US$614.1 million month-on-month at the end of September. Also, the apex bank issued US$1.0 billion of the September 20, 2017 instrument at N243.50/US$1.00 to replace the September 28, 2016 instrument which matured last week. While lamenting the reserves crises last week, Minister of Budget and National Planning, Sen. Udoma Udo Udoma, said Nigeria had revenue and foreign currency concentration problems, adding that diversification was the only solution. Foreign exchange dealers feared that with the unresolved scarcity of dollar, there might be further fall of the foreign reserves in subsequent months, just as the apex bank said it would maintain its weekly step–up interventions aimed at shoring up the ailing Naira.