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Forex Reserves declined by $5.8bn in 5 months - Edoman - 11-12-2018
Forex Reserves declined by $5.8bn in 5 months
November 12, 2018
November 12, 2018 By Chima Nwokoji - Lagos Money Market
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![[Image: cbn-and-forex.jpg]](https://s23069.pcdn.co/wp-content/uploads/2017/03/cbn-and-forex.jpg)
Nigeria’s foreign exchange reserves which witnessed a remarkable surge in 2018 on the heels of improved oil prices, hitting $47.8 billion in June is now a little shy of $42 billion according to figures from the Central Bank of Nigeria.Hence, the external reserves declined to US$41.8 billion as at November 7, 2018 from US$47.6 billion at start of half year (H2):2018, indicating a decline of US$5.8 billion or -12.2 per cent.
The decline in the foreign exchange reserves continued last week, as the Central Bank of Nigeria (CBN) sustained interventions. Interestingly, the continuous decline in the foreign reserves coincides with the rise in prices of crude oil, which has maintained an average price of US$80.00/per barrel over the last one month.
Some financial experts said given the pace of depletion of the reserves, the sustained interventions are precarious over the medium-term, which could result in action from the monetary authority.
A finance expert, Dr Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University, Keffi, is of the view that due largely to effective foreign exchange management policies introduced by the CBN notably the Investors and Exporters window helped by recovery in crude oil price and output, some degree of stability has returned to the forex market.
But this stability is now under threat. Reflecting the impact of exogenous shocks, driven largely by monetary developments in the United States in particular, the near-term outlook for the currency market in Nigeria appears grim in the wake of dwindling external reserves, said Uwaleke.
He further explained that a broad retreat by foreign investors from the country on the back of interest rates hike in the US is largely to blame.
While the US monetary policy normalisation represents one major reason for foreign investors’ exit alongside concerns over potential fallout from an escalating trade war between the US and China, another trigger has been the heightening political uncertainty. Besides these, other factors that could be putting a strain on the country’s external reserves include the increasing cost of servicing growing external debts, high import bills despite government measures and the high dollar preference over the naira by politicians which came to the fore during the just concluded political parties’ primary elections.
“The fast depletion of the country’s external reserves of late provides disturbing evidence that foreign investors’ concerns about Nigeria show no sign of abetting. Political uncertainty is driving up perceived economic risk which in turn is drying up capital inflows,” he further stated.
Like every other country, Nigeria needs strong foreign reserves to meet international payment obligations timely, boost the country’s credit worthiness, provide a buffer against external shocks as well as maintain a stable exchange rate.
The Tribune