External reserves shed $975.7m year-to-date as free fall continues

Nigeria’s foreign reserves continued its downward slope, a trend formed towards the end of last year after it failed to sustain a momentary recovery witnessed in October.

The gross figure, which has remained a consistent gradual depletion in the past five months, dropped to $39.54 billion on Tuesday. Year-to-date (YTD), the external reserves shed $975.7 million.

Last year closed with an estimated reserve gross value of $40.52 billion. The reserves suffered a wobbling performance last year, tumbling below $34 billion at some point.

A breather, however, came with $3.35 billion International Monetary Fund (IMF)’s special drawing rights (SDR) and Eurobond issuance. Windfalls from the two sources provided the needed buffer and pushed up the reserves above the magical N40 billion market.

A chief executive of a publicly quoted manufacturing company in Lagos told The Guardian that up to 80 per cent of “our FX needs for inputs and others” are sourced from the parallel market as official sources are not available.

Adonri said the resort to black market deals even by users who should be serviced by the official market was a major factor driving up the rate at the P2P segment.

As the external reserves plunge, the CBN may have been scaling down on the component of the figure invested in foreign securities. The reserve management framework allows the apex bank to block a maximum of five per cent of the total figures in securities whose maturity must not exceed 10 years.

Previously, the CBN had blocked as much as six per cent in foreign investment assets. The 15-year average of blocked portions, according to data sourced from the Central Bank, is 2.8 per cent.

In contrast, the currently blocked proportion is 0.5 per cent. It has remained below one per cent since the beginning of last year, suggesting that the CBN may be weaning the reserve off liquidity risk.

But Adonri, who spoke with The Guardian on the subject via telephone, also suggested that the reserves are proceeds of short-term funds, which cannot be invested in assets that have medium or long-term maturity.