02 April 2015, Lagos – The declining fortunes of the nation’s external reserve continued last month, as it fell by $1.55 billion during the month.
Data published by the Central Bank of Nigeria (CBN) indicated that the external reserve fell from $31.356 billion on February 27th February to $29.79 billion on Monday, March 30th. This represents 4.9 percent decline.
Consequently, the external reserve has fallen by $4.49 billion or 13 percent since the beginning of the year.
It would be recalled that the continued decline of the external reserve was cited by Fitch credit rating company, for downgrading Nigeria’s credit rating Outlook to ‘Negative’ from ‘Stable’.
A statement issued by the company on Monday said, “Fitch Ratings has affirmed Nigeria’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB-’ and ‘BB’ respectively. The Outlooks on the Long-Term IDRs have been revised to Negative from Stable.
“The revision of Outlook on Nigeria’s IDRs reflects the following key rating drivers and their relative weights: Medium Political uncertainty is heightened in the context of a tightly contested presidential election and potential transition issues.
The polls were officially delayed due to security concerns stemming from Boko Haram activity, however violence was very limited on Election Day and challenges were largely technical in nature. The government has made gains in the past few months in the fight against Boko Haram, but this follows a period in which the group seized large parts of the north east, where the threat remains largely contained.
“Fiscal and external buffers have been eroded significantly as Nigeria enters a period of lower oil prices and are well below the levels of the 2008/09 oil price shock. Oil accounts for around 60% of fiscal revenues and 75% of current external receipts. The Excess Crude Account (ECA, the key fiscal buffer) stood at $2 billion at end-2014, down from $19.7 billion at end-2008. Foreign exchange reserves were equivalent to 3.8 months of current external payments at end-2014, compared with 7.8 months at end-2008. Fitch does not expect savings to be rebuilt significantly by end-2016. High dependence on oil revenues will cause the external position to deteriorate despite a rapid policy response.
“Fitch forecasts the current account to fall into deficit in 2015 for the first time since 1998 owing to lower oil prices. A modest surplus is expected in 2016. Economic performance is likely to weaken, although non-oil growth will remain robust. Real non-oil growth is forecast to slow to 5.5% in 2015, from 7.4% in 2014 and an average of 5.6% over the past five years. Non-oil growth will be hit by the devaluation of the naira and election-related uncertainty, but will be less impacted by fiscal consolidation due to the small size of the government”.
*Babajide Komolafe – Vanguard