Nigeria’s foreign exchange reserves declined by 15.61 per cent year-on-year to $29.101 billion as at December 30 from $34.52 billion a year ago, data from the Central Bank of Nigeria (CBN) revealed on Thursday.
The drop in the forex reserves value has been largely attributed to the significant reduction in forex inflow into the country occasioned by the sustained low crude oil prices. Oil prices have been hovering around $37 per barrel in the past few weeks. Oil prices tumbled Wednesday after data showed an unexpected increase in US crude supplies.
Diesel futures dropped to the lowest level since 2004 as U.S. stockpiles of distillates, a category that includes diesel fuel and heating oil, rose more than expected.
A global glut of crude has weighed on the market for more than a year. Oil prices are on course to fall by more than a third this year as big suppliers such as Saudi Arabia and Russia have continued pumping crude in a bid to defend their market share. Meanwhile, United States (US) crude output has been resilient despite the low prices, and much of the excess has gone into storage.
Light, sweet crude for February delivery settled down $1.27, or 3.35 per cent, at $36.60 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, declined $1.33, or 3.5 per cent, to $36.46 a barrel on ICE Futures Europe.
As a result of this, the central bank introduced several measures aimed at preserving the foreign exchange reserves and ensuring exchange rate stability last year. For instance, the central bank lasy year harmonised the foreign exchange market by closing the official window of the foreign exchange market in order to create transparency and minimise arbitrage opportunities in the foreign exchange market. This was then seen by a lot of commentators as a tacit devaluation of the nation’s currency. All demand for forex was then directed to the interbank market.
Furthermore, to deepen the market and enhance the efficacy of the demand management measures, the central bank gave specific directives on the effective monitoring and repatriation of both oil and non-oil export proceeds. In addition, the utilisation of export proceeds was restricted to eligible transactions only to minimise leakages. Also this year, the CBN officially stopped the sale of dollars for a list of 41 items as it also sought to reduce pressure on the naira as well as preserve the external reserves. However, it stressed that importers desirous of importing them could do so using their own funds without any recourse to the Nigerian forex market.