The City Reporters
Nigeria’s external reserves have continued their downward slide, falling by $234 million in the last two weeks despite efforts by the Central Bank of Nigeria (CBN) to stem the tide, New Telegraph has reports.
Data obtained from the apex bank’s website showed that the reserves stood at $29.8 billion as at April 1, but fell to $29.6 billion as at April 15.
New Telegraph reported that the continuous slide in the external reserves has raised questions in industry circles on the ability of the incoming administration to fulfill some of its key electoral promises.
With oil exports constituting over 90 per cent of Nigeria’s foreign earnings and over 70 per cent of government revenue, the sharp drop in oil prices in the middle of last year has resulted in huge pressure on the reserves as demand for foreign exchange rose significantly prompting the CBN to use the reserves more frequently to defend the naira.
However, the apex bank has attributed the pressure on the reserves and the attendant weakness of the naira to the activities of currency speculators.
It has in recent months introduced several measures to address the problem, including a devaluation of the naira by eight per cent in November last year and the scrapping of the Retail Dutch Auction System (RDAS) window in February, which also led to the naira dropping to N199 to the dollar. In addition, as part of efforts to check the activities of speculators, the CBN has threatened to prosecute users of foreign currencies for local transactions.
On Tuesday, it reduced the limit on the usage of naira denominated cards for transactions overseas from $150,000 to $50,000 per person per annum and directed authorized dealers to ensure that the daily cash withdrawal limit embedded in the cards per person, per day is pegged at $300.
According to financial experts, the international standard for healthy external reserves is that the reserves should be able to support six months import cover, which for Nigeria should be about $48 billion. However, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo- Iweala, has said there is no cause for alarm as the current level is still better than three months’ coverage required by the West African Monetary Zone.
“Despite the depletion in the level of external reserves, Nigeria is still in a comfortable zone. This is because the level of our reserves is able to cover more months of imports when compared with the three-month requirement under the convergence criteria of the West African Monetary Zone (WAMZ).
“In addition, Nigeria’s external reserve level is able to cover more months of imports than the sub- Saharan Africa,”
she stated. But financial experts have said the International Monetary Fund (IMF) or the World Bank may step in and seek to offer financial assistance to Nigeria if the reserves continue to decline at the current rate.
Okonjo-Iweala had in January hinted of plans to augment capital spending with “external long-term concessional borrowings for infrastructure projects,” adding that those being courted to provide the funds were the World Bank and China.
At a recent presentation in Lagos, the Chief Executive Officer, Financial Derivatives Company Limited (FDC), Bismarck Rewane, had warned of dire prospects for the country’s economy, predicting that federally collected revenue could decline further by about 25 per cent in the first quarter of this year.
According to analysts, with such a significant shortfall in expected revenue, the incoming administration will face many challenges fixing infrastructure and executing the capital projects that it promised to carry out during electioneering.
A former President of the Association of National Accountants of Nigeria (ANAN), Dr. Samuel Nzekwe, told New Telegraph that although the falling reserves would pose a challenge to the incoming administration, it could fulfill its promises if it manages the economy efficiently.
He said: “Efficient management of the economy is key. The government has to drastically reduce corruption and, in particular, put an end to the practice of over invoicing. The nation loses a lot of money through over invoicing. You cannot imagine how much is lost to that practice.
For instance, do you know how much the ministries will save by carrying out their own projects instead of awarding contracts. The government will also save a lot of money by stopping the importation of rice and other such commodities. Then finally, the government will have to increase productivity.”
