External Reserves Shrink by $9bn in 1year

Nigeria's foreign exchange reserves fell significantly by $9.010 billion to close at $34.495 billion as at December 30, data from the Central Bank of Nigeria’s (CBN’s) website showed on Wednesday.

The current position of the external reserves, which is derived mainly from proceeds of crude oil earnings, represents a depreciation by 21 per cent, compared with the $43.505 billion at which it stood on January 2, 2014.

The CBN last year relied heavily on the external reserves to support the naira which came under pressure as a result of falling oil prices.

Oil prices have hovered at between $55 a barrel and $60 a barrel since last month.

The CBN had attributed the continuous pressure in the foreign exchange market to the rise in the demand for the greenback brought on by loss of confidence by investors as oil earnings fell.

Specifically, the CBN pointed out that with the slide in crude oil prices, the country had spent huge assets from the foreign reserves in ensuring that the official exchange rate was maintained at its previous value of N155/$1. The naira was recently devalued to N168 to a dollar.

The CBN Governor, Mr. Godwin Ifeanyi Emefiele, had explained recently, “We must remember that in an import-dependent country like ours, the exchange rate operates like every other price in the market. The forces of demand and supply basically determine movement of the naira."

He however pointed out that the factors that had led to the dwindling supply of US dollars were mainly global and not country specific.

“As we all know, the main source of our forex supply is the sale of crude oil, however, during the year, we have seen oil price fall by nearly 40 per cent… The direct implication of this is a significant reduction in supply of dollar to the market.

“The other global factor which has significantly reduced the supply of dollar to the market is related to the end of the quantitative easing (QE) by the US Federal Reserve.
“This programme came to an end in October 2014, thereby significantly reducing the supply of dollars to the global economy,” he explained.

The US Federal Reserve had at the end of October halted its $4.5 trillion bond-buying programme, a radical monetary policy it introduced at the outset of the global financial crisis.