Foreign Reserves increased by $3.1 billion in May Despite COVID-19

• Foreign Reserves increased by $3.1 billion in May Despite COVID-19

The Nigerian foreign reserves rose in the month of May despite the economic headwinds brought about by COVID-19 pandemic and the drop in global oil prices.

The foreign reserves rose by $3.073 billion from $33.520 in April to $36.594 billion in May, according to the data released by the Central Bank of Nigeria. The reserves had plunged from $38 billion in January 2020 due to the weak global demand for crude oil and low oil prices.

Global demand for oil prices dropped by over 30 million barrels per day in April during the peak of COVID-19 lockdown. With refineries shut, oil-dependent nations like Nigeria were unable to sell crude oil or generate revenue despite their economic challenges.

According to a Reuters report, Nigerian unsold oil cargoes was about 60 in April, indicating the severity of the situation.

However, with several analysts projecting that the nation’s economy could contract substantially amid rising capital flight, the central bank was forced to devalue the Nigerian Naira to reduce capital flight and stabilise the Nigerian forex market.

That was after Godwin Emefiel, the governor of the CBN, said in November 2019 that the drop in the foreign reserves was not enough to create fear or devalue the Naira.

In 2020, he later said “The moderate recovery in crude oil prices would reduce the pressure on the external reserves and government revenue,” Emefiele said.

He, however, warned the government to urgently reduce its reliance on oil revenue by gradually diversifying the economy and improving tax collection.

He added that “Central to the committee’s considerations were the impact of the COVID-19 pandemic, the oil price shock and the likely short- to medium-term consequences on the Nigerian economy.”

“In particular, the committee acknowledged the gradual improvement in macroeconomic variables particularly the improvement in the equities market, the containment measures of the COVID-19 induced health crisis, as well as, the impact of the increase in crude oil price on the external reserves.”