Foreign reserves dip significantly, reverses previous gains

Amid myriad of restrictive measures to stem the
steady slide in the external sector of the economy, a
significant reversal of gains has been recorded in the
foreign reserves, with latest figures at $27.1 billion as at last
weekend, showing a decline by $730 million or about 2.6
per cent in April 2016, against $27.9 billion recorded in
March.
The March figure was the first growth, though marginal at
about 0.14 per cent, ever recorded in recent months.
The April figure, which is now less than six months import
cover, also shows a massive 6.4 per cent decline since this
year, losing a total of $1.9 billion.
The latest development came against the backdrop of
foreign exchange management measures aimed at reducing
demand, curtailing speculative purchases, while reining in
on exchange rate volatility at the autonomous segment of
the market.
Vanguard investigations show that while the first two
objectives have largely failed so far since last year, when
the policies came into force, a measure of stability in
exchange rate had been achieved after the February 2016
all-time volatility was recorded.
Exchange rate maintains stability
Almost throughout April, near-stability in exchange rate had
been recorded in the parallel market which ranged between
N320 and N330/ USD1, while the official and interbank
market segment was maintained administratively at N197
and N199/USD1.
As at last weekend, rates were stable at market average of
N321/USD1, even as a marginal appreciation of the local
currency was recorded early in the week.
However, the Central Bank of Nigeria, CBN’s, policies have
not been able to address the wide parallel market gap which
had spurred excessive and speculative demands in the
official segment.
In the same month of April, two major policy moves were
made to starve off the demand pressures but the latest
reserves position indicates that the policies are yet to yield
positive results.
The two new policy moves are the currency swaps with
China and the special provision and sale of foreign
exchange to petroleum products marketers.
China and petroleum products import bills are the largest
group of real demands on foreign exchange reserves.
Before the two policies, CBN had last year eliminated over
41 products from its list of eligible products for foreign
exchange supply, while following it up with stringent foreign
exchange bidding requirements on banks.
Policy outcomes were adverse
These policies, along with several monetary policy circulars
and directives on foreign exchange since last year,
according to some observers, may have slowed down the
rate of decline in foreign reserves, but they may have
equally had adverse effect on the general macroeconomic
indicators.
For instance, the economy had recorded massive foreign
investment exits, especially foreign portfolio investments,
FPIs.
The figures on the Nigerian Stock Exchange Domestic &
Foreign Portfolio report released in March showed that FPI
outflows at cumulative value of N58.2 billion in January and
February surpassed inflows which was N27.95 billion by
108.2 per cent.
The foreign exchange policies have also pressured inflation
to 12.8 per cent, far beyond CBN’ s tolerance limit of 9.6
per cent while depressing gross domestic products, GDP.
The cumulative effect on the private sector includes poor
corporate performance with banking sector taking the worst
heat ever recorded in recent years.
Future appears hopeful
Looking into the month of May, financial analysts at
Afrinvest West Africa, a Lagos-based financial institution,
said: “We expect that the relative calm in the foreign
exchange market will spill over into the month of May.
However, we believe that there might be a shift in the
stance of the apex bank on foreign exchange policies at the
next Monetary Policy Committee, MPC, meeting scheduled
for the May 23 and 24.
MPC is the highest monetary policy making organ of the
CBN.
In their own introspection, analysts at Cowry Assets
Management, another Lagos-based inve