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Nigeria’s external reserves decline by $317m

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By Abraham Adekunle

Forex earnings dwindle due to sub-optimal oil production caused by oil theft.

Nigeria’s gross external reserves have continued to decline. In February 2023, forex reserves reduced by $317 million to $36.7 billion, according to data from the Central Bank of Nigeria (CBN). A new report by FBNQuest says that the latest decline can be attributed to reduced foreign exchange (FX) inflow into the economy and increased demand pressure on the gross official reserves. “With the exception of accretions recorded in the months of April, June, and July 2022, the gross official reserves have been declining steadily since November 2021,” FBNQuest said.

In addition, Bismarck Rewane, the managing director of Financial Derivatives Company Limited, said Nigeria’s sources of foreign exchange remain weak due to sub-optimal oil production induced by oil theft. In August 2022, stolen oil worth N86.2 billion was recovered, and that is just one of the many instances of recovery or discovery of theft. Rewane said in his latest presentation at the Lagos Business School that Nigeria FX earnings suffer from capital flow reversal because of global monetary tightening and exchange rate premium at the parallel market.

Experts blame CBN intervention at official FX market.

Other experts have attributed the decline in foreign reserves to not only the dwindling oil production but also the constant intervention by the CBN at the official FX market in a bid to defend the local currency. Henry Ogbuaku, the head of asset management at Growth and Development Asset Management Ltd, said that the bulk of the country’s foreign exchange earnings come from the oil sector. However, Nigeria has not been meeting its OPEC crude oil production quota because of oil theft and pipeline vandalism.

Also, Kelvin Atafiri, the CEO of Cavazanni Human Capital Limited, said that the decline in external reserves was an indication of limited or inadequate accretion to external reserves. Atafiri said that the only major contributing source to foreign reserves is crude oil exports, and since has not able to meet her Organization of the Petroleum Exporting Countries’ (OPEC) production quota, it is therefore expected that the country’s external reserves will suffer such a level of inadequacy.

Country’s oil production has increased in the last few months.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC)’s latest oil production status report, crude oil output rose to 1.3 million barrels per day (bpd) in February. This is the highest in 13 months. NUPRC data show that the country’s oil production increased by 39 percent from 937,766 bpd in September when the country was battling with oil theft and pipeline vandalism in the Niger Delta region. On a month-on-month basis, with crude oil output rising by 48,154 bpd in January.

Atafiri revealed that oil earnings take about three months to settle in cash. This means that most of the transactions for higher oil prices recorded in recent weeks are yet to settle in, he said. Several miles south of Nigeria, South Africa also battles the same problem. Like Nigeria, South Africa’s official reserves fell by almost $760 million to $54.1 billion. FBNQuest said that the drop in the country’s international liquidity position is mainly caused by the decline in gold price during the month as well as adjustments due to the appreciation of the US dollar.

The 5th most indebted African country to China is Nigeria.

Recent data has shown that Nigeria, Africa’s largest economy, is one of the most indebted African countries to China. It owes $4.15 billion to the Asian country. In contrast, Egypt’s official reserves increased by about $128 million to about $34.4bn in May, primarily because of external debt service repayments comprising mainly of Eurobonds and IMF loans. In December 2022, the International Monetary Fund approved a $3 billion extended fund facility for the country over a 46-month period to help cover its balance of payment deficit.

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Central Bank of Nigeria: Website

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