External Reserves Down as CBN Settles Matured Obligations

Nigeria’s external reserves diminished to $25.860 billion as at August 12, 2016, following the settlement of matured obligation by the Central Bank of Nigeria (CBN).

The latest external reserves position revealed by the CBN showed that the reserves derived mostly from the proceeds of crude oil sales fell by 1.9 per cent or N514 million in the last one month, compared with the $26.374 billion it was as at July 12, 2016.

Following the lifting of the peg on the naira on June 20, the central bank conducted a Special Secondary Market Intervention Sales (SMIS) to clear the backlog of $4.02 billion pent-up demand for forex.

According to the CBN, it sold $532 million on the spot market and $3.487billion in the forwards market. A breakdown of the $3.487 billion forward sales by the central bank had shown that $697 billion was for one month (1M), $1.22 billion for two months (2M) and $1.57 billion for three months (3M). Also last month, the central bank settled one-month forward contracts of $697 million.

The naira, which closed at N317.34 to the dollar on the interbank forex market on Monday has been under pressure in the forex market as complaints of scarcity of the greenback persist.

The central bank ditched its 16-month old peg on the naira in June and introduced a flexible exchange rate regime to allow the currency to trade freely on the interbank market.

But as a result of forex scarcity in the system which had resulted to the strong volatility observed in the forex market, the banking sector intervened last week in its bid to achieve exchange rate stability.

Oil prices rose on Monday to their highest in nearly a month as speculation intensified about potential producer action to support prices in an oversupplied market. Brent crude was up $1.19, or 2.5 per cent, at $48.16 per barrel. The international benchmark futures are up about 13 per cent above the last close in July.

Crude oil prices recorded nearly 20 per cent climb in April to about $46 per barrel. OPEC crude-oil production surged by 484,000 barrels to 33.217 million a day in April, according to a Bloomberg survey.

The external reserves were expected to decline further due to the settlement of large swap positions between the banks and the CBN.

The federal government last week said it had saved about N1.4 trillion that would have been paid as subsidy to oil marketers as a result of the successful deregulation of the downstream oil and gas sector a few months ago.

Vice-President, Prof. Yemi Osibanjo who disclosed this while speaking at the Lagos Chamber of Commerce and Industry 2016 Presidential Policy Dialogue Session also said the Nigerian economy remained resilient despite the huge challenges and downside potentials.

According to the vice president, refineries in the country were expected to resume operation in full capacity before the end of 2017,having set a medium to long term strategy in motion to overhaul and sort them out.

“Of course, the medium to long term plan is to sort out the refineries; it is important for us to deal with refineries because as many of us have well known, one of the largest foreign exchange cost for us is the importation of petroleum products and at the moment, most of our refineries are operating at sub-optimum and what we are able to refine is negligible compared to what is required on daily basis.

“The recent introduction of flexible exchange rate regime, which was meant to ease pressure on external reserves, is of course one issue I am sure many will still want to comment on. But I think that the immediate effect of the devaluation and depreciation of the naira and some of the consequences which include inflation is to be expected and I believe that as we see the implementation of that policy and clearer focus on a truly flexible exchange rate, we will be able to see the actual benefit of of this policy. I believe that the foreign exchange market will stabilise; confidence will be restored and there will be an increase in the supply of foreign exchange, especially due to inward investments,” he added.