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External reserves fall $6bn below target

By on December 28, 2013

The nation’s external reserves have again fallen by $6bn below the Federal Government’s $50bn target, according to the latest figures obtained from the Central Bank of Nigeria.

The statistics showed the reserves recorded $43.93bn as of December 23, 2013, indicating approximately $6bn below the $50bn target.

In 2012, contrary to the Federal Government’s plan to raise the country’s external reserves to $50bn, the reserves closed the year at $44.26bn.

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, said in July 2011 that the Federal Government had set a target of $50bn external reserves for 2012 from the July figure of $36.37bn.

Okonjo-Iweala, at a meeting with the Organised Private Sector in Lagos, had stressed the need for the country to shore up its external reserves, saying that there was the need to build up the reserves to $50bn before December, 2012.

She pointed out that this would help the country to stand on its feet in the event of any global economic recession.

Unfortunately, the reserves closed the 2012 at $44.26bn as of December 24, 2012.

Although the reserves rose by $11.34bn, representing a 34 per cent increase in 2012 from $32.92bn in 2011, it failed to meet the government’s desired goal.

The minister did not say the government would pursue the target in 2013. But financial analysts stressed the need for the government to build up the reserves to the target.

Like Okonjo-Iweala, the experts had argued that the $50bn target would help the economy to stand in the event of any shock or economic recession.

Before dropping to the $43.93bn on December 23, 2013, the reserves had last week fallen to a record one-year low of $44.19bn on December 17.

The amount in the foreign reserves as of January 2, 2013 was $44.33bn. The reserves started rising through the year and peaked at $48.8bn on April 30.

From May, however, the reserves started falling gradually. Between May 2 and August 5, 2013, the foreign reserves had fallen by $1.8bn from the peak of $48.85bn to $46.98bn.

Again, the reserves fell by $3bn between August 14 and December 17. They fell from the peak of $47.1bn on August 14 to $44.1bn on December 17, 2013, indicating $3bn drop within the period.

Also, between September 6 and November 25, the reserves fell by $2bn from $46.77bn to $44.66bn.

The reserves recorded a nine-month low of $45.08bn on October 14.

The $44.26bn, which the reserves reportedly closed the year on December 24, 2012, is about $330m above the $43.93 it recorded on December 23, 2013.

Some analysts are of the opinion that the amount the CBN has been offering for sale on the Dutch Auction System is fast depleting the external reserves.

The central bank had defended the naira with $18.7bn at the Wholesale Dutch Auction System between April and November 4 in a bid to save the currency.

It offered $18.7bn to currency dealers in 59 auctions in the seven-month period.

The data showed that the central bank sold the highest amount of dollars in the month of July, offering $3.3bn, the highest in the year.

The CBN had in July hiked the cash reserve requirement for public sector deposits to 50 per cent from 12 per cent in a bid to tighten liquidity and shore up the value of the naira, but has failed to stem the currency’s decline.

Prior to that, in June, the naira declined by 0.4 per cent to N159.45 per dollar, hitting the highest since September 24, 2012.

The data also showed that the bank offered to the public $2.8bn in the month of September, making it the second highest in the year, while it offered a total of $2.6bn in the month of October.

However, the CBN on October 2 replaced the WDAS with the Retail Dutch Auction System because of the ineffectiveness of the former in order to address hitches in the foreign exchange market.

The Head, Global Research Africa, Standard Chartered Group, Ms. Razia Khan, said the WDAS was abused because it allowed banks to collate bids for clients and make a single forex bid.

However, under the RDAS, banks will place bids for clients who qualify to buy forex at the official auction.

Notwithstanding this move, observers said the CBN had, in a couple of months back, resumed direct intervention by selling dollars to end-users in the market.

The regulator took the decision in order not to devalue the naira, operators said.

According to analysts, the performance of the reserves is driven mainly by proceeds from crude oil, gas exports and crude oil-related taxes as well as reduced funding of the Dutch Auction System on the account of huge inflow of foreign portfolio investments.

Okonjo-Iweala had predicted a $12bn revenue shortfall for the country this year.

 

 

[Punch]