CBN explains why Nigeria’s foreign reserves are dropping

The apex bank in Nigeria, Central Bank of Nigeria (CBN) on Wednesday explained that the fall in foreign reserves of Nigeria is due to a hike interest rates by US Federal Reserve and the bank’s interventions in the forex market.

The CBN’s Director of Communications, Isaac Okorafor, made this explanation in Abuja during CBN special day at the ongoing Abuja International Trade fair, organised by the Abuja Chamber of Commerce and Industry.

Okorafor, who assured Nigerians that there is no cause for alarm over the country’s dwindling foreign reserves, stressed that the report in some sections of the media about fall in foreign reserves was not totally correct.

According to him, “It is also on social media that our reserves dropped by $1.45 billion in one month. We are not politicians.

“Of course, I want you to understand that the reserves level is a moving figure; at times, it rises and other times, it comes down. And as we speak, it’s a little over $44 billion.”

“You’ll recall that there was a time we survived on even $23.2 billion, the economy was running.

“Now, we are over $44 billion and the reason why it’s going down gently is because there’s a global squeeze on emerging markets: the Central Bank of the USA which is the Fed had been raising interest rate and you know international capital goes to where it earns better returns.

“So, those who came into our economy to take advantage of the returns here seems to have found better returns in the US and it’s not just in Nigeria, it’s happening to South Africa, Egypt, Pakistan, Iran, Argentina, Brazil, Turkey even China.

“China has lost over 1.3 per cent of its currency. Argentina lost 134 per cent; Iran, India, some of them lost 18 per cent, 17 per cent, but here in Nigeria, our currency has gained six per cent in the last one year.

“You can see that the reversal of capital flows which is eating most economies and bringing about depreciation in their currency is not affecting us for two reasons — we’ve built enough buffers of reserves to be able to tackle situations like these.”

The CBN official, who further explained the foreign reserves are currently being used to defend the value of Nigeria’s currency also noted that the reserves can support between 17 and 18 months of import whereas the international standard is three months import.

“At present, Nigeria has $44 billion in its foreign reserves.

“Secondly, we’re using the reserves to defend the value of our currency. So that also accounts for why it’s dropping.

“Investors who brought in dollars, of course, we have a capital importation policy. If you bring your dollars, when you’re leaving, we give it to you,” he said.

In his remarks, the President, Abuja Chamber of commerce, Prince Adetokunbo Kayode, who was represented by the provost, Business Entrepreneurial Skills and Technology Centre; Prof. Adesoji Adesugba commended the apex bank for making sure there is economic stability in the country.

His words, “The Nigerian Payments System has witnessed remarkable achievements in the recent past, with the introduction of a number of initiatives under the Payments System Vision 2020.

“The Monetary Policy Committee of the bank which has the responsibility of formulating monetary and credit policy has also done remarkably well in either adjusting of retaining key indicators.

“We also appreciate the swift response by the CBN which have succeeded in ridding our economy of sharp practices by some financial institutions or houses.”

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