Oil Price Uptick Boosts External Reserves’ Accretion by $404m

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•Reserves rise to $34.8bn in two weeks

Obinna Chima

Nigeria’s external reserves have maintained a positive momentum in the past two weeks, rising by $404 million to $34.820 billion as of March 31, 2021.
This, according to figures compiled from the Central Bank of Nigeria’s (CBN) website, represented an increase by 1.2 per cent, compared with the $34.417 billion it was as of March 18, 2021.

The uptick was primarily due to a rise in the benchmark Brent crude oil price, which has remained around $60 per barrel. This is about $20 per barrel above the $40 per barrel which the federal government’s 2021 budget is predicated on.
Nevertheless, Nigeria continues to face macro-economic challenges, which have seen foreign portfolio investors remain edgy.

Fitch Ratings recently predicted that Nigeria’s external reserves would rise to $42 billion in 2021.
In a report titled, “Depreciatory Pressures on Key Sub-Saharan African Currencies to Lessen,” the global credit rating agency had hinged the forecast on its expectation that Brent crude would average $53 per barrel, compared to the $43.1 per barrel recorded in 2020. Moreover, the agency anticipated that the CBN would allow the official naira exchange rate to depreciate further over the course of 2021, notwithstanding improved terms of trade and foreign exchange reserves.

“Given rising oil prices in 2021, we expect forex reserves to rise to an average of around $42 billion in 2021 (around eight months of import cover), compared to $36 billion in 2020.

“However, this will not negate the impact of persistent depreciatory pressures on the naira, notably as a result of rising dollar demand driven by the domestic economic recovery,” it stated.
Speaking at the last Monetary Policy Committee meeting, CBN Governor, Mr. Godwin Emefiele, stated that contrary to reports, Nigeria has not altered its forex management policy.

Emefiele added that the country has not changed from its managed float forex management policy.
He had said: “Nigeria still remains on a managed float. What does a managed float regime mean? That the CBN, being the institution that has a core mandate for forex management in the country, we will run the market, see how the market operates, depending on its reading of how the exchange rate moves in the market, we will come from time to time to intervene in the foreign exchange market.

“I repeat, there is no need for anybody to panic. Luckily we have exited recession; so, that’s one positive. Two, crude prices are moving up; three, we are aggressively focusing on Diaspora remittances; four, we are looking to how to encourage foreign investors into the country.

“So we are very optimistic that there’s enough and there will continue to be enough foreign exchange for people to meet their obligations. We just need people to be patient.
“And I am also saying so again that if you have any foreign currency obligation, your obligations will be met. There’s no need for everybody to rush to the door at the same time, creating panic and giving speculators the opportunity to reap us off.”