Economists and financial analysts have dismissed fears over the US$ 1.8 billion fall in Nigeria’s external reserves, saying the drop has not reached a crisis level but remained significant, the local Punch newspaper reported Friday, quoting Prof. Sherifdeen Tella of the Olabisi Onabanjo University, in Nigeria’s South West Ogun State.
He said: “They have not reached a critical level. When the reserves cannot sustain our imports for up to nine months or in some cases six months, then, we know we are in danger.
“But I think the level we are now, US$ 46.98 billion, can still sustain imports for at least one year.”
Prof. Tella, who teaches economics, was quoted as saying “from the latest data, posted on Central Bank of Nigeria (CBN) website, Nigeria’s foreign reserves dropped by US$ 1.8 billion from the peak of US$ 48.85 billion in May to US$ 46.98 billion on 5 August.”
He pointed out that the falling reserves were indicative of how much of imports Nigeria could sustain, adding that the dwindling oil prices and output could be some of the reasons for the falling external reserves.
Another economist, Dr. Ayo Teriba, said the proposed Quantitative Easing by the central bank of the United States rocked the markets and triggered liquidity contraction in Nigeria.
He, however, expressed optimistic that the nation’s external reserves would start picking up as soon as the proposed winding down of the Quantitative Easing had been retracted by the Board of Governors and Chairman of the US Federal Reserve Systems, Dr. Ben Bernanke.
According to him, “Bernanke’s comments on Quantitative Easing rocked the market and money left Nigeria. There was an increase in demand in the Wholesale Dutch Action System and the CBN needs to cough out money to meet the excess demand.
“The current drop in external reserves does not have any implication on the economy. It was just liquidity contraction triggered by Bernanke’s comments. Bernanke has retracted the statement and the markets are back to normal and Nigeria will soon be back. The external reserves will soon start going up and even reach around US$ 49 billion.”
Another Professor of Economics at the Ekiti State University in South West Nigeria, Dr. Abel Awe, said anything above US$ 45 billion was still good for the country, noting that robust external reserves were meant to ascertain the credit worthiness of the country.
The nation’s external reserves had risen steadily since last year due to high oil prices and stability in the foreign exchange market.
The government had targeted US$ 50 billion reserves by the end of 2012. But the reserves, however, closed the year at US$ 44.26 billion on 24 December, 2012, finishing US$ 6 billion below the government’s target.
The Central Bank of Nigeria Governor, Mr. Lamido Sanusi Lamido, said in May that the outlook for the country’s foreign reserves this year was mixed.
He said the foreign-currency reserves would probably keep expanding, while facing risks from lower-than-projected oil output and falling prices.
“We always said that the budget based on projections of about 2.5 million barrels per day was founded on overly optimistic and unrealistic assumptions,” the CNB Governor added.