Nigeria Content Online

Nigeria’s foreign reserves dropped to $35.66 billion as at Monday, the lowest level in over four years.

The
reserves, which peaked at $62.24 billion in mid-May 2008, have
fluctuated ever since due to huge withdrawals by government. The last
time the reserves stood near this level was around April 2006.

The
latest figure, which closed at $36.54 billion last month, signifies a
net withdrawal of $880 million (N132 billion). This is in addition to
the savings that would have been done during the period, especially
with oil selling at over $70.

The
Central Bank (CBN), at the last Monetary Policy Committee meeting held
in Abuja at the beginning of the month, expressed concern that huge
spending in an election year and implementation of new salary structure
in the civil service may create inflationary pressure in the economy.
The MPC subsequently raised the benchmark interest rate from 4.2
percentage points to 6.25 percent.

No devaluation

Lamido
Sanusi, the Central Bank governor, said recently that the regulator
does not intend to devalue the naira. This reassurance came after the
naira had depreciated for two weeks consecutively, dropping to its
lowest level in 13 months on Monday.

According to Mr. Sanusi, the CBN would continue to meet genuine demands for foreign exchange.

“The
Committee would continue to monitor developments in the market to
ensure that measures are taken to eliminate speculative demand and
exchange rate volatility,” said Mr. Sanusi, at the end of the MPC
meeting.

He,
however, attributed the increased demand for foreign exchange to
dividends remittance by some companies and enhanced importation of
refined petroleum products, due to the Federal Government sovereign
debt instruments.

Analysts
at FSDH Research, a financial services and research firm, however,
blame the drop in the value of the naira on the huge demands which were
not met by the Central Bank.

“We
expect the CBN to increase the amount of foreign exchange on offer in
order to douse the rising demand for foreign exchange and to ensure
that the value of the naira remains stable and within the limit of
three percent.”

Depleting reserves

Samuel
Nzekwu, former president of the Association of National Accountants of
Nigeria (ANAN), said the steady depletion of the foreign reserves has
far reaching effects on the economy.

He
said the depletion may invariably lead to depreciation in the value of
the local currency, which can equally send early warning signals to
Nigeria’s trading partners.

“It
is not a good omen, although it is not bad if we were using the
reserves to develop infrastructure. In this case, we don’t know what
the money is used for.

“We
know election costs a lot of money, but you cannot hide under election
to spend money anyhow. Unemployment is rife, armed robbery and
kidnapping have become the order of the day. My problem is that we do
not even know what the CBN is doing. They come up with different
policies every day,” he said.

He
noted that the excessive spending by government, which has led to the
near exhaustion of the Excess Crude Account (ECA), will inevitably lead
to inflation.

The ECA, which stood at over $20 billion in 2007, is now about $500 million.