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At 47 billion in March 2018, foreign reserve recorded significantly 104 percent growth from a low of $23 billion in October 2016, the highest since 2014. This is good news that is worth the celebration by stakeholders both at the public and the private sector. It is widely believed that that growing reserves should impact positively on the appreciation of local currency, investors’ sentiments, stability and liquidity of the exchange rate. However, the realities on ground seem not to have reflected the ideals of an economy experiencing exponential growth of its reserves.
To begin with, the CBN currently report external reserves as gross figures without clear disclosure of the reserve components or baselines. There is increasing concern about the sources, real owners and costs of Nigeria’s growing reserves. Thus, before Nigeria celebrate the wealth that does not belong to her it is important to shed some light on the sources of the remarkable growth of reserve and how much actually belong to the country.
- According to the National Bureau of Statistics (NBS) Q4-2017 report, $4.6 billion was imported into the country out of which 60% ($2.76 billion) was directed to portfolio investments. The figure has grown to well over $3bn at the end Q1-2018. This money is a liability waiting to crystalize and did not form part of our wealth.
- Since February 2017, Nigeria has issued about $7.5bn worth of Eurobond debt compared to $1.5bn of Eurobonds raised by the country between 2011 to 2015. This amount, $7.3bn is added to Nigeria’s reserves as part of the Funds on paper. Again, the FG cannot spend the money because it has already collected the naira equivalent.
- Remittances of Nigerians in diaspora, bank balances from domiciliary accounts of Nigerians, inflows from grants/donor and NGO sources are hard to tell due to lack of detailed and timely numbers from CBN. Again, this part of the reserve fund does not belong to FG.
To my conviction, the only part of the current reserves that is devoid of prior commitment, interest payment or refundable is the ECA which has about $2.5bn. This is the ready for use and available reserve value that belongs to the FG. This may serve to moderate the ceremonies building around our rising reserve figures.
It is our wish that net external reserve numbers are reported along with the gross figures. There is need to determine the net or unencumbered part of our forex reserve at any point in time. Also, commitments such as forward obligations and the components of the external reserve such as oil sale, non-oil export proceeds, portfolioinvestment and FDI proceeds, grants, receipts from debt liabilities and aggregate balance from individual domiciliary accounts in the bank should be reported byCBN. This will assist analysts to make informed decision and sustain investors’ confidence.
Vincent Nwani
Dr Nwani is the Director of Research and Advocacy at the Lagos Chamber of Commerce & Industry (LCCI)
Feedback email: Vincent_nwani@yahoo.com
