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The end to the fall
of Nigeria’s foreign reserves may not be anytime soon as factors such
as strong demand for foreign exchange, year end expenditure, and
elections are predicted to still take a toll on the funds.

“A nation’s
falling foreign reserves has two levels of influence on the economy”
Biodun Adegboye, an economist and lecturer at the University of Lagos
said.

“It affects both
the external and the internal economic situation of a nation. Anytime
we have depletion, a country loses its credit worthiness, both
externally and even internally. Countries that would otherwise have
borrowed such an economy funds would become jittery and reluctant to do
so.” Mr.Adegboye also said such a country loses its confidence in
economic viability.”Look at China; they are seeking ways to grow their
foreign reserves. It’s over $1 trillion already. The advantage and
significance of a strong and solid foreign reserve base is to be able
to contain any external shock that may affect the smooth running of the
system. Let’s assume that there is an external shock and the country
cannot generate funds, how do we then push the budget demands and
balance its forecast?”

“In recent times,
we were told the existing foreign reserves can cover about nine months
of imports but at this rate, we cannot say this is what will happen.
The lower the months that can be covered however, the worse for an
economy.”

No cause for worry

A source at Eco
Bank however says there is no cause to worry or panic at this stage.
“The government have been embarking on some high revenue projects. Take
the power initiative for instance. We cannot say that because we want
to save money, we cannot invest in projects that would better the lives
of Nigerians. We must use our money to achieve these things. The issue
is that they should just be fair and sincere in their approach.

“The oil price is
high and encouraging. The country would always make money. Personally,
am not really worried about this. I believe that if indeed this money
is invested wisely,even if the accounts are down now, in a few months,
we should be able to build it up, to any reasonable level we desire” Mr.

Adegboye further
said that, “internally, what those funds are spent on is very
important. If they are spent on consumer goods, increase of salary, or
any such that increases the purchasing power of the residents of such
economy, it can overheat the economy and then lead to inflation and we
all know the implication of that”.

“On the other hand,
if such funds are spent on critical infrastructure, like creating good
roads, power, transportation, human empowerment, education and the
sort,then it would have a long run positive impact on the economy so
the question is what has the government been spending these funds on?”
he said.

Nigeria’s external
reserves have been falling at a rate at which experts say calls for
caution. In October, the nation’s foreign exchange reserves fell 15 per
cent to $34.57 billion compared to $40.75 billion at the same time a
year earlier.