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External reserves not declining – CBN

By on September 11, 2013

Contrary to the recent drop in the value of the nation’s external reserves, the Central Bank of Nigeria on Monday dismissed claims that the reserves were experiencing sharp decline, adding that the current value of $46bn showed that the fundamentals of the economy remained strong.

The CBN Governor, Mr. Lamido Sanusi, said this at the opening ceremony of the regional course on reserves and foreign exchange management.

The course, which was organised by the West African Institute for Financial and Economic Management, was targeted at how foreign reserves could be optimised to generate income.

Sanusi, who was represented by the Deputy Governor, Operations, CBN, Mr. Tunde Lemo, said, “Nigeria’s foreign reserves have not been declining; our reserves level is about $46bn and that’s still very strong, which is approximately 11 months of imports.

“The fundamentals of the Nigerian economy are still very strong and occasionally, there might be increase or decrease, but it has been hovering between $45bn and $47bn, and that is very strong.

“In Africa, it is either the second highest or third highest. I think it is the second highest only after Algeria, and that’s really very remarkable.”

The foreign reserves had been hovering between $47bn and $48bn since February 20, 2013, when the nation recorded N46.96bn. The CBN data had shown that the reserves dropped from $48bn on June 28 to $47.6bn on July 2, 2013.

The $47.6bn reserves, however, represented about 30.5 per cent increase over the $36.6bn recorded on July 2, 2012.

On July 16, the external reserves dropped further to $46.99bn.

The Federal Government had at the beginning of the year targeted an external reserves balance of $50bn.

Sanusi also explained that in spite of the uncertainties in the global economy, which had made major economies to cut interest rates in order to provide market liquidity, Nigeria’s external reserves would be invested in a currency mix that would optimise returns for the country.

He also allayed fears about the uncertainties of the Nigerian economy,  stating that the country’s reserves, which currently stood at about $46bn, could finance about 11 months of importation.

The move to invest the reserves in other currencies other than the dollar, according to him, is necessary in view of recent events in the global economy that have driven yields to historical low levels.

He said, “A major concern among central banks in recent times is how to generate income from foreign exchange reserves without compromising the reserves management objectives of safety and liquidity.

“Liquidity and safety are far more important and they come before returns management.

The central bank boss said since the financial crisis of 2008, reserves managers had come under increased pressure to find ways of enhancing income.

This development, he noted, had made the CBN to diversify its reserves portfolios by investing in the Chinese Renminbi.