With Nigeria’s national currency under increasing pressure in the wake of its devaluation by the Central Bank of Nigeria, CBN, the impact appears to be telling on the country’s foreign reserves, which declined to $34.38billion in January.
Latest CBN data on Friday showed the external reserves dropping marginally by 0.43 per cent from $34.53 billion on month-on-month basis in December 2014.
The drop is attributable to the various drawdowns by the CBN pursuant to its commitment to defend the nation’s currency.
During the recent Monetary Policy Committee, MPC, meeting, CBN governor, Godwin Emefiele, restated the resolve of the Bank to ensure that it did everything possible within its core fiscal mandate and regulatory responsibilities to defend the Naira and the exchange rate of the national currency.
Mr. Emefiele had assured that the CBN was closely monitoring the market, and would not hesitate to intervene whenever there were tendencies towards speculative attacks on the Naira, to avoid the value of the national currency from going out of control outside the target band of N160-N176 to the dollar
In the wake of the recent decline in the global crude oil price, which negatively impacted the national currency, the CBN intervened by devaluing the Naira from N155 to the dollar to N168, in a bid to ensure stability and attempt to find the true value and shore up the country’s foreign reserves.
However, by the middle of January, the foreign reserves, which one of the main fiscal buffers to ensure the stability of the economy, fell by 3.2 per cent on month-on-month from the figure in December, after the CBN decided to intervene by drawing from the account.
Besides, a further withdrawal from the Excess Crude Account, ECA, which is the other fiscal buffer, to augment the statutory allocation in the Federation Account for December, has reduced the saving less than $3billion.
The continued depletion of the ECA has raised concerns among critics about the state of the nation’s economy, heightened by the sharp decline of the price of crude oil, which dropped from over $100 a barrel to about $43 a barrels since August.
Since May 2007, the foreign reserves have continued to fluctuate in response to the swings of oil prices at the international market.
From about $43.13billion, the reserves reached a peak of about $62billion in September 2008 when oil prices reached the all-time high level of $147 per barrel, before falling to a low of $31.7 billion in September 2011.
The Minister of Finance, Ngozi Okonjo-Iweala, had defended the situation, saying the fall in reserves was largely as a result of the volatility of commodity prices in the global economy, particularly the oil market, which compelled the CBN to intervene, by deploying part of the reserves, to defend the value of the Naira.
On the ECA, the minister said it was used largely to cushion the economy at the height of the global financial crisis in 2008-2009, pointing out that Nigeria’s ability to ensure the stability of the economy without resorting to external borrowing during the crisis was as a result of the savings in the ECA.