Nigeria’s foreign reserves will get a timely boost on Monday when the country’s share of $3.5billion from the $650 billion Special Drawing Rights (SDRs) approved by the International Monetary Fund (IMF) to boost global liquidity, matures for collection.
Consequently, the nation’s foreign reserves currently put at $34billion will hit the $37billion threshold, which will boost the capacity of the Central Bank of Nigeria (CBN) to fund higher volumes of external transactions and achieve a further convergence of the exchange rate around the I & E window.
This is coming as the CBN has threatened to revoke the operating licence of any microfinance bank found engaging in foreign exchange transactions.
The apex bank has also urged the organised labour to collaborate with it to grow the country’s economy.
The approval for the SDRs credit was announced by the board of IMF on August 4.
SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF.
They are units of account for the IMF and not a currency.
Also, they represent a claim to currency held by IMF member countries for which they may be exchanged. SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and United States dollars.
Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who confirmed the maturity of the IMF’s credit to THISDAY yesterday, said: “Upon receipt of the IMF’s SDR credit of $3.35billion expected on August 23, we expect gross external reserves to increase to about $37billion. This will provide more support for the CBN to support the currency and lead to a further convergence of the exchange rate around the I & E window.”
Rewane also said in the August edition of the FDC Monthly Update, released during the weekend, that “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.
“In the first fortnight of August, Nigeria’s gross external reserves maintained a steady accretion. The reserves gained 0.30 per cent to $33.58billion (August 13). The cumulative gain as of August 13 is $180million. At $33.58billion, the reserves level is sufficient to cover 8.24 months.
“We expect the CBN’s increase in forex supply to commercial banks to support the exchange rate for invisibles in the near term and ultimately, close the gap between the parallel and official rates (N104/$ as of August 13). Similarly, we expect the $3.35billion IMF SDR allocation to increase the external reserves level to about $37billion and support the CBN’s intervention in the forex market,” Rewane explained.
About $275 billion (193 billion SDRs ) of the new allocation would go to emerging markets and developing countries, including low-income countries.
The economic research firm projected additional foreign exchange accretion through the anticipated rise in higher oil revenue in the coming months.
“We expect the increase in Nigeria’s domestic oil production to be sustained in the coming months barring any disruptions,” the FDC report stated.
It added that: “An increase in oil production will offset the fall in oil prices and this will lead to higher oil revenue. This will impact positively on the fiscal and external balances of the country.”
FDC quoted the Organisation of Petroleum Exporting Countries (OPEC) monthly oil report as stating that Nigeria’s domestic oil production increased by 3.60 per cent (45,000 barrels per day) to 1.44mbpd in July from 1.39mbpd in June. This, according to the report, is 22.58 per cent below the benchmark of 1.86mbpd.
Nigeria’s oil rig count had increased by 40 per cent from five to seven in June.
Consequently, the company expects oil prices to remain soft in the near term due to the surge in Covid-19 cases globally.
FDC stated, “China, a major importer of oil, recently imposed lockdown measures. This will dampen its oil demand prospects and weigh on the oil price. We expect oil prices to stay within the $70 per barrel- $74pb range.”
It explained that although lower oil prices and the attendant reduction in oil earnings cannot be ruled out, the government’s acquisition of a 20 per cent stake in Dangote Refinery will be the saving grace.
“Oil accounts for 86 per cent of Nigeria’s export earnings and contributes approximately 10 per cent to GDP. Lower oil prices coupled with Nigeria’s low oil production would lead to reduced oil earnings and government revenue.
“The government’s acquisition of a 20 per cent stake in the Dangote Refinery, which is projected to be the largest single-plant in the world, guarantees a steady supply of crude to the refinery and will boost the NNPC’s revenue. In addition, the Kaduna and Warri refineries will undergo rehabilitation and complement the Dangote refinery. Nigeria could be on its way to being becoming a regional oil hub,” the report added.