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Nigeria’s external sector prone to global shocks — CBN

By BusinessNews Staff on May 20, 2014

The Central Bank of Nigeria says the external sector of the economy remains vulnerable to global shocks due to increased exposure to short-term capital, rising external debt and high demand pressure that have resulted in the depletion of the external reserves by 2.9 per cent.

The CBN stated this in its latest report on the external sector.

The report, released on its website on Friday, read, “In the fourth quarter of 2013, the external sector still remained vulnerable to global shocks evidenced by increased exposure to short term capital, rising external debt and high demand pressure that resulted in the depletion of external reserves by 2.9 per cent.

“In order to reduce vulnerability in the sector, policy redress should be directed towards sustained macroeconomic stability, reduced infrastructural deficit by up-scaling the power sector output to increase domestic production and curtail the relatively high level of importation. The renewed pressure in the foreign exchange market with the premium exceeding the benchmark level remained worrisome, thus, market dynamics should be adequately situated. In addition, securing of new loans must be on self sustaining projects.”

According to the CBN report, the total foreign exchange inflows to the economy in the fourth quarter dropped by 8.2 per cent to $35.34bn from $38.49bn recorded in the third quarter.

It said that inflows through the CBN decreased by 20.2 per cent from $11.86bn in the third quarter to $9.47bn in the fourth quarter.

Also, inflows through autonomous sources declined by 2.9 per cent to $25.88b, while outflows in the fourth quarter decreased by 13.1 per cent to $11.22bn as against $12.91bn in the third quarter.

Consequently, a lower net inflow of $24.12bn was recorded in the fourth quarter of 2013, compared with $25.59bn in the third quarter. This indicated a decline of 5.7 per cent.

The report added, “At $4.94bn in the fourth quarter of 2013, aggregate foreign capital inflow increased by 24.3 per cent from $3.97bn in the third quarter of 2013 owing to an increase in both direct and portfolio investment inflows. Direct investment and portfolio investment inflows increased by 16.1 and 26.6 per cent from $0.86bn and $3.11bn in the third quarter of 2013 to $1bn and $3.94bn, respectively.

“Portfolio investment inflow remained dominant and accounted for 79.7 per cent of total foreign inflows while direct investment inflows accounted for 20.3 per cent of the total. The higher inflow of foreign capital in Q4 2013 was a welcome development which should be sustained through macroeconomic stability and enhanced investment environment including good corporate governance.”

[Punch]

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