Thursday, January 14, 2016

Economic Woes Are Weighing Heavily On Nigeria’s Foreign Reserves

Analysis and Reporting by: Tom Okure, Ph.D
Date January 14, 2016
Nigeria, the largest economy in Africa is facing major economic and financial challenges as a result of the sustained decline in world oil prices. Oil on Thursday January 14, 2016 traded at below $30 a barrel for Brent crude oil compared to $125 to $140 just two years ago. The Naira is losing its exchange value daily with major world currencies like the pound and dollar. The nation’s currency, the Naira exchanged at $1 to N300 in the parallel market today while the government unrealistically continues to peg the official government exchange rate at $1 to N197.

Nigerian Central Bank
Nigerian policy makers are desperately attempting to diversify the country’s revenue sources.  The impact of the falling oil prices is reflected everywhere in the economy and the foreign reserves of the country has fallen significantly to $ Today, the country’s foreign reserves is 18% lower than it was one year ago. This foreign reserve loss is supposedly the largest drop according to the Central Bank of Nigeria since the central bank began to implement the use of Bank Verification Number (BVN) in forex trading.

During the festive holiday season in December 2015, the central bank was forced to close the interbank foreign exchange market on December 21, 2015 in order to conserve forex for an opening on January 4, 2016.  This left the parallel market as the main avenue for forex during the holiday period.

A couple of days ago the CBN announced plans to stop the sales of foreign exchange (forex) to Bureau de Change (BDC) operators accusing the BDC operators of causing the draining of scarce foreign exchange reserves of the country. According to CBN governor, Godwin Emefiele, the BDC’s were profiteering from the forex market, Irrespective of prevailing official and interbank rates, and were equally financing unauthorized transactions with foreign exchange procured from the CBN. Apparently, according to experts, Nigeria is alleged to be one of the few countries in the world that sells dollars to BDC’s and such practice should have been stopped a long time ago.  The immediate direct consequences of the CBN action to stop sales of forex to BDC operators will most likely be an increased pressure on the parallel market which will increase the exchange rate of dollar to naira even above 300 Naira. ...Read more
Nigeria’s external reserves now $29.1bn
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