By Favour Nnabugwu
Nigeria witnessed a 35 per cent spike in its foreign reserves as Eurobond and Special Drawing Rights (SDRs) shot it up from $32.9 billion recorded last June to $41.4 billion this month.
According to Governor of the Central Bank of Nigeria(CBN), Mr Godwin Emefiele, who disclosed this at the weekend in his address at the Bankers’ Dinner in Lagos, the accretion was as a result of demand management policy of the apex bank, Eurobond and the International Monetary Fund’s (IMF) Special Drawing Rights( SDRs).
SDRs are supplementary foreign exchange reserveassets defined and maintained by the International Monetary Fund (IMF}.
Giving his scorecard before the gathering of the bankers and other dignitaries at the event, Emefiele said: “Prior to the start of the pandemic in 2019, our economy was making steady progress out of the difficulties from the global oil price vagaries of the previous years. Indeed, our Gross Domestic Product (GDP) growth rate for 2019 stood at 2.3 per cent, on the back of a relatively strong fourth quarter GDP of 2.55 per cent that year. This growth was accompanied by significant foreign capital inflows due to improved fundamentals of the economy.
“As a result of the drop in foreign exchange supply, arising from low earnings from the sale of crude oil, the Naira depreciated by 7.7 per cent from N380/$ to 410/$ at the I & E window. Supply was also affected by massive outflow of foreign portfolio investments from emerging and frontier Markets, including Nigeria in 2020. A combination of these factors led to a marked drop in our foreign reserves from nearly $36.7billion at the beginning of the crises in March 2020, to a low of $32.9billion in June 2021. It is important to state that the volume of activities at the I&E window fell from nearly $250million – $300 million daily to less than $40 million in the first quarter of 2021.
“As a result of these measures, we witnessed robust economic recovery as GDP growth stood at 4.03 per cent in the 3rd quarter of 2021, following the 5.01 per cent growth recorded in the 2nd Quarter of 2021. The economy has remained on a positive growth path for four consecutive quarters after the recession in the 3rd quarter of 2020. 41 out of the 46 sectors assessed in the 3rd quarter by NBS, recorded positive growth, as growth was driven by significant improvements in the non-oil sector, particularly, agriculture manufacturing, trade, ICT, construction, finance and transportation. We have also witnessed a gradual recovery in manufacturing output growth as the Manufacturing PMI index rose to 47.3 points in October 2021 from 44.9 in January 2021.
“Supported by our demand management policy, in addition to support from the successful issuance of the $4 billion Eurobond and the IMF SDR, our external reserves today stands at over $41.4billion, which is enough to support 9 months of imports. This is not just a morale booster for both foreign direct and portfolio investors willing to invest in the economy, but it provides significant fire power to support our domestic industries that need to import critical machines and equipment for domestic production and exports.”
“As a result of our demand management policy, the naira has remained largely stable around N411/$1 at the I&E window, particularly since the discontinuation of FX allocation to Bureau De Change operators along with the convergence between the CBN and NAFEX rates. Banks are now able to meet the demands of their customers seeking forex for SMEs, school fees, medical and PTAs, which has reduced the need of customers to rely on alternative providers of foreign exchange. Average daily FX turnover at the I&E window is now over $250million, up from $40million in April 2020.
“Our current account deficit has narrowed significantly, from a huge deficit of 4.53 percent of GDP in the 4th quarter of 2020 to negative 0.44 per cent of GDP in the 2nd quarter of 2021.”