Nigeria: Foreign reserves in steady decline

29 September 2015, Lagos – Nigeria’s foreign reserves is now on a steady decline against the backdrop of the decision by Central Bank of Nigeria, CBN, to protect the Naira from depreciation.

foreign reserves down.slide.fallAs at last trading day on Wednesday, September 23, the reserves had fallen to $30.485 billion, about $1.139 billion drop from this year’s peak of $31.624 billion recorded about six weeks ago, August 9.

Foreign reserves, which mirrors an economy’s relative strength and ability to finance its imports and foreign investors’ obligations, had witnessed an upward growth since June from $29 billion, reversed the trend on August 9 and has since been on the decline.

The declining trend, according to financial sector analysts, is a result of CBN’s operations in the foreign exchange market, where it tries to meet demands at a predetermined exchange rate amidst declining oil revenue.

However, foreign exchange market reports still indicate continued excess demand which has continued to put pressure on exchange rate, while premium on parallel market continue to widen.

The National Bureau of Statistics, NBS, said that the weak performance of the external sector and its vulnerability to external shocks reflect the dismal contributions of the non-oil sector and low produc-tion in the economy.

Many financial analysts have also attributed the outflows to recent announcement by USA investment banker, JP Morgan, that it was withdrawing Nigeria from its Government Bond Index for Emerging Markets, GBI-EM.

Afrinvest Group, a Lagos-based investment banker, said the development would further pressure the external reserves as funds attracted to the economy through GBI-EM, will be expected to leave the financial system.


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