External reserves gain $30.3m in a week

The nation’s external reserves which have been hovering between $29 billion and $30 billion in March, recorded an appreciable figure of $30.3 million in just seven days, latest data from the Central Bank of Nigeria (CBN) website has shown.

As at April 10, 2017, the statistics showed that reserves stood at $30.39 billion, representing an increase of over $30 million compared to $30.29 billion as at end of March 2017.

According to the apex bank’s data, the external reserves as at April 5, 2017 stood at $30.32billion, but jerked up to $30.34 at the end of business activities on April 6, 2017.
Business Times, however, observed that the External reserves continued to increase in March amid increase in global oil prices in combination with the inflows from the International Money Transfer Operations (IMTOs).

But there was a significant gain of a total sum of $27.8 million in four-days, between March 31, 2017 balance of $30.29billion and appreciated figure of $30.33billion at the end of April 5, 2017.

However, financial experts have continued to give reasons for the increase in the external reserves, while attributing the recent rise to steady increase in global oil prices, among other factors.

The foreign exchange had fallen by $3.2 billion or 10 per cent in 2016 from $29 billion to $25.8 billion. A group of experts at GTI Securities Limited, a Lagos based securities firm said, “As indicated in earlier Exchange Rate analysis, the external reserves was weak all through 2016 and greatly limited the CBN’s ability to support price stability.

“The weak oil receipts in the course of the year resulted in depletion of the reserves account which eventually hit a 15-year low of $23.89billion in October 19th. The account has since recorded marginal accretion as inflow from International Money Transfer Operations (IMTO) on trade proceeds has helped to boost upside.

“The marginal increase in oil production after the government and Niger-Delta Avengers entered into truce equally contributed to recent rally on the reserves.”
They explained that the output cut agreement reached by OPEC members in late year November and the OPEC and non-OPEC members deal in December is expected to provide boost to the foreign reserves going forward and thereby supporting the fiscal and monetary policies makers in steering the economy out of current recession.

Meanwhile, the price of Organization of Petroleum Exporting Countries (OPEC) basket of thirteen crudes stood at $52.91 a barrel on last week Friday, compared with $51.82 the previous day.

Chief Executive Officer, Economic Associates, Ayo Teriba explained that, “Despite the constraints on policy responses in 2016, cycles are now on the upturn in 2017, and the recession, inflation and weakness of the Naira are most likely to fizzle out. “Oil price has risen from a low of $28 per barrel in the first quarter of 2016 to $55 in the first quarter of 2017, external reserves have risen steadily for six months to climb above $30 billion by March 2017, after reaching a low of $23.9 billion in October 2016.

“The oil price is likely to average about $55 in 2017. Government also expects oil production to be stable at 2.2 million barrels per day in 2017 as expressed in the federal budget proposals. The outlook for growth, inflation and exchange rate is brightened by this.
“The parallel market rate is beginning to appreciate in response to improvements in the central bank’s capacity to supply foreign exchange, with the parallel market rate rising to N380/$ in March 2015, after touching an all-time low of N520/$ the month before.

“If the oil price holds up at the current level and external reserves continue to grow, the parallel market rate will continue to appreciate until it converges with the inter-bank rate.

“Both rates started to diverge after external reserves dropped below US$36 billion in November 2014, forcing the CBN to close its Wholesale Dutch Auction (WDAS) window and devalued the interbank rate from N150/$ to N197/$ by February 2015, only for the parallel market premium to widen steadily as falling reserves signalled weakness of the CBN to meet demand. CBN was forced to devalue the interbank rate again in June 2016, but premium continued to widen to signal unease.

“Between the two devaluations of the inter-bank rate, CBN introduced a lot of obstructionist policies to suppress demand, like forcing recipients of inward remittances to receive their funds in Naira at the controlled inter-bank exchange rate, restricting foreign currency transactions on accounts held with Nigerian banks, and publishing an infamous list of 41 import items that would not be funded by CBN. Such demand restrictions amplified the cyclical downswing and triggered the recession.

“A better response would have been for the CBN to look beyond the current account and boost foreign exchange inflows on the capital account to counter the downswing. The problem was the sharp drop in foreign exchange supply that a fall in oil price from US$110 per barrel in 2014, to $53 in 2015, and $28 in the first quarter of 2016 implied. Boosting supply would have been a better way to stabilise the market than restricting demand to amplify the downswing, or attempting to float the exchange rate in the face of the supply shortfall as the CBN did.

“Now that the external reserves are rising, the central bank is beginning to drop some of its administrative restrictions and is likely to continue to do so once reserves keep rising, until we get back to a threshold of $36 billion in external reserves when a stable supply can be assured, and the rates in the markets will converge.