Foreign Reserves Drop to $36.1 Billion in Almost Two Months
Foreign reserves declined with falling revenue generation and weak oil prices in the month of July, according to the Central bank of Nigeria.
In the apex bank daily report titled, ‘Movement in Foreign Reserves,’ the Nigerian foreign reserves fell from $36.577 billion reported on the 3rd of June, 2020 to $36.083 billion on July 17, 2020.
This represents a decline of $494 million in the last six weeks.
Also, it highlights the main consequence of the drop in global oil price, weak demand for the commodity and economic uncertainties on Africa’s largest economy.
Nigeria struggles with low dollar liquidity and falling Naira value due to the weak foreign revenue generation and crystalising negative impacts of COVID-19 lockdown on the economy.
The Central Bank of Nigeria has devalued the nation’s currency twice in the last four months to better manage its foreign reserves and reduce demand for the greenback by foreign investors looking to move their money abroad.
While experts have lauded the apex bank’s move towards forex unification, it also shows its waning power to sustain present Naira value amid current macro fundamentals. Therefore, foreign investors are holding back from investing in the economy as they are projecting that the local currency would trade at slightly above N500 to a US dollar in the near-term.
This is largely due to the nation’s rising debt service-to-revenue ratio. Nigeria’s debt service to revenue ratio hits 99 percent in June, according to the latest report from the Debt Management Office. Suggesting that the nation is not generating enough revenue to simultaneously service its debt and embark on its numerous developmental projects.
On Monday, the International Monetary Fund (IMF) said Nigeria presently does not need to raise taxes but must deepen its collection efficiency. The Fund said despite the nation having one of the lowest debt to GDP ratio in the world, it continues to struggle with weak revenue generation that over the years has crippled economy and new capital expenditure.
The inflation rate rose to 12.56 percent in June while manufacturing Purchasing Managers’ Index, which measures activity in the sector, stood at 42, below the 50 mark that separates expansion from contraction. Indicating that rising forex rate amid persistent dollar scarcity is hurting activities in the manufacturing sector as evident in the latest inflation number.
The Naira plunged to N472 per US dollar on the black market on Monday, its lowest in over three years.
