Nigeria’s Gross Reserves: At The Edge Of A Tipping Point?

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In recent times, fresh concerns have emerged over the rate of decline in Nigeria’s foreign reserves. In Q3-19 alone, the country’s external reserves declined by $3.2 billion, to settle at $41.7 billion. This was as the level of capital inflows into the country slowed, with crude oil price volatility being a major driver. As new downward pressures emerge, the golden question is to what extent will the rate of decline become alarming to monetary policy authorities.

Earlier, a UK commercial court ruled in favour of Process and Industrial Development Ltd. (P&ID), granting the entity the right to seize about $9.6bn in Nigerian assets. With policymakers racing to prevent the huge drawdown, the Nigerian government has been giving the opportunity to secure a stay of execution, however, with a $200 million price tag. Elsewhere, oil prices have continued to dance to the tune of global events, trending lower at $58.4/b, putting pressure on Nigeria’s forex earnings and threatening the possibility of further capital flight. Additionally, the Central Bank of Nigeria has continued to support
the local units at the expense of the reserves.

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Although the continuous decline has not reached a tipping point, signs are beginning to flash for Nigeria to restructure. Currently, Nigeria’s import cover for foods as at Jul-19 stood at 10.2 months, lower than 15.8 months in Jan-19. Accordingly, the Central Bank Governor hinted that below $30/ b crude oil price and $30.0 billion are factors that could prompt a devaluation.

       “United Capital Plc Research (UCR)”

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