New Telegraph

External reserves rise by $698.4m in one week

Nigeria’s external reserves increased by $698.4 million to $34.180 billion as of September 2, 2021 from $33.973 billion as of August 25, 2021, latest data from the Central Bank of Nigeria (CBN) shows.

 

The reserves, which, following the sharp drop in the price of oil (the commodity that accounts for 90 per cent of the country’s export earnings) and the impact of COVID- 19 crisis, has generally been on a downward trend in the last 20 months, has now risen to its highest level in over two months.

 

New Telegraph had recently reported that Nigeria was expected to have received about $3.35 billion as its share of the International Monetary Fund’s (IMF) $650 billionn Special Drawing Rights (SDRs) – about SDR 456 billion – allocation, which came into effect on August 23, a devel opment that would boost the nation’s external reserves.

 

The SDR, an international reserve asset created by IMF in 1969 to supplement its member countries’ official reserves, can be exchanged among governments for freely usable currencies in times of need.

 

Indeed, announcing the takeoff of the $650 billion SDRs aimed at helping IMF member countries cope with the impact of COVID-19 crisis, IMF Managing Director, Kristalina Georgieva, had said: “The SDR allocation will provide additional liquidity to the global economic system supplementing countries’ foreign exchange reserves.”

 

Georgieva, who said the SDRs would be distributed to countries in proportion to their quota shares in IMF, disclosed that $275 billion would go to emerging and developing countries, of which low-income countries will receive about $21 billion.

 

According to the IMF boss, “the SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domes-  tic or external debt.

 

Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis. “SDRs are being distributed to countries in proportion to their quota shares in the IMF.

 

This means about $275 billion is going to emerging and developing countries, of which lowincome countries will receive about $21 billion – equivalent to as much as six per cent of GDP in some cases.”

 

Financial analysts had predicted that Nigeria’s $3.35 billion of the IMF’s $650 billion SDRs will significantly boost the country’s external reserves.

 

For instance, the Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, said: “We expect the $3.35 billion IMF SDR allocation to increase the external reserves level to about $37 billion and support the CBN’s intervention in the forex market.”

 

The FDC boss said the increase in Nigeria’s external reserves level upon receipt of the SDR allocation of $3.35 bil-lion would enhance the CBN’s ability to support the naira. “An increase in the gross external reserves will support the CBN’s intervention at the foreign exchange markets and help in the convergence of the parallel market rate towards the rate at the I&E window,” he added.

 

However, New Telegraph could not confirm if the Nigerian government’s receipt of the $3.35 billion IMF SDRs allocation is what is responsible for the current accretion to the external reserves or whether the increase is occasioned by the rebound in oil prices.

 

Analysts at EFG Hermes projected a few weeks ago that the IMF SDR allocation could push Nigeria’s external reserves to $40 billion this month. Specifically, the analysts stated that SDR allocation would boost the nation’s reserves by about 10 per cent, while an additional planned minimum $3 billion Eurobond issuance could boost reserves by about 20 per to over $40 billion.

 

They, however, pointed out that Nigeria’s forex position remains contingent upon further naira adjustment. New Telegraph reports that as part of measures to conserve the country’s external reserves, the CBN on July 27, 2021 announced the stoppage of its weekly sale of forex to Bureaux De Change (BDCs) which it accused of engaging in forex arbitrage and other illegal activities.

 

The apex bank’s clampdown on the BDCs has, however, led to the naira crashing to N530 per dollar at the parallel market from N505/$1 on July 26.

 

In a recent report, analysts at United Capital Research said that the CBN’s reduced intervention at the Investors and Exporters’ (I&E) window in the last few weeks may be fuelling demand for dollars at the parallel market, thereby leading to recent naira weakness in that segment of the forex market.

 

The analysts, however, predicted that the current pressure on the naira at the parallel market could be temporary, given that the Federal Government would soon issue the first tranche of its planned $6.2 billion Eurobond issuance

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