CBN allays fears over dwindling external reserves
The Central Bank of Nigeria, CBN, has said there is no cause for alarm over the drop in the nation’s external reserves which has been on a downward trend lately.
The director, Corporate Communications of the CBN, Mr Isaac Okorafor, assured that at the current level of $44billion, the external reserves is still sufficient to take care of the nation’s import bill for 17 to 20 months, much more than the three-month standard recommendation.
Giving reasons for the recent drop, Okorafor explained that Nigeria’s external reserves had been on a downward slide in recent times because of higher yields in the United States.
However he said some foreign investors who had gone to emerging markets to take advantage of the high yields, have had to go back to the United States because of better opportunities there at the moment, adding that Nigeria’s situation was not peculiar.
Okorafor said, “The drop in our forex reserves is basically as a result of the capital flow reversals arising from rising interest rates in the United States. You will recall that the Federal Reserve has been raising rates and has even given guidance that this would continue in the near term.
“As a result of this, investments in the emerging and some frontier markets are gravitating towards the US market to reap higher returns. There is also the factor of election cycle. In Nigeria, however, we have done much better than most emerging and frontier economies.”
He added, “Some of these countries have suffered substantial depreciation in their currencies as a result of these flow reversals. For instance, since this year, Argentina has lost 134 percent of its currency to depreciation largely occasioned by these reversals; Brazil lost 34 percent; Turkey, 78 percent; Iran, 25 percent; South Africa, 19 percent; Russia, 18 percent; Pakistan, 17 percent; United Kingdom, 3.7percent; Japan, 1.3percent; whereas Nigeria has gained six percent by way of appreciation.
“The key reason is because the CBN adopted a forex management strategy that has worked successfully, achieving a comfortable stability in the exchange rates and still maintaining an equally comfortable reserves level.”
He also listed some intervention programmes, which the apex bank had undertaken in order to propel the growth of Small and Medium Enterprises in the country including the Agricultural Credit Guarantee Scheme Fund, the N200billion Commercial Agricultural Credit Scheme and N200billion SME Restructuring and Refinancing Facility. Others are the SMEs Credit Guarantee Scheme, the N300billion Power and Airline Intervention Fund and N220billion Micro, Small and Medium Enterprise Development Fund.
“It is pertinent to mention here that so far, the overall impact of these interventions is the enhanced operational capacity of the SMEs that has translated into a reflation of our economy with the attendant growth and development,” Okorafor added.