Nigeria’s external reserves have fallen to a 4 months low of $46.9 billion against a previous balance of US$47.01 billion, according to data from the Central bank of Nigeria (CBN) website.
The dollar reserves fell by 0.31 percent week on week.
“What is typically driving the foreign reserve down is foreign portfolio investors leaving the markets as a result of increasing political tension and risk attributed to election periods. However, the foreign reserve decline is nothing to worry about as it is quite expected that periods like this could result to some decline in external reserves,” Johnson Chukwu, CEO cowry asset management limited told BusinessDay by phone.
Also, the selloff in the stock market continued due to increasing political tension in the economy. The Nigeria stock exchange all share index (ASI) further declined by 0.09 percent yesterday to close at 36299.80 points from 36333.80 points according to data collated from Bloomberg.
BusinessDay analysis shows also the possibility of decline in Nigeria external reserve due to declining crude oil production. Data gotten from Opec reveals that average crude oil production in Nigeria in Q2 2018 declined by 5 percent quarter on quarter. Nigeria crude oil production stood at an average of 1.6 million b/d in Q2 2018 from 1.8 million b/d in Q1 2018.
During this period, oil price rallied by 17 percent during the same period from about $67p/b to $79.44pb. A large percent of Nigeria’s foreign reserve is proceeds from crude oil exportation; therefore, declining crude oil production may lead to a decline in the foreign reserves of the country.
Due to relatively stable FX markets witnessed in the first half of 2018, importation of goods and commodities increased driving import levels up as export levels declined due to declining crude oil production.
Ayodele Akinwunmi, head of research and strategy at FSDH merchant bank ltd explained that Nigeria recorded the lowest foreign inflow in July 2018 since August 2017 in the I&E window, therefore the drop in inflows have led to the decline in the nation’s gross reserve within the same period. In July 2018 total inflows amounted to US$1.6 billion.
David Ibidapo
