Nigeria’s forex reserves shrink to $35bilion — but can finance seven months imports — CBN

Abiola Seun |

The Central Bank of Nigeria, CBN, has indicated that the country’s foreign exchange reserves at current level of about USD35 billion would cover seven months import needs of the economy.

This is contained in the apex bank’s 2020 economy review and 2021 outlook it has just released.

In the review and outlook, the bank explained that with the decline in the nation’s foreign exchange earnings and successive exchange rate adjustments, it was forced to implement a demand management framework which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of external reserves.

It stated: ‘‘Due to the unprecedented nature of the shock, we continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which rapid changes in the exchange rate could have on key macro-economic variables.

” This, we believe, is in line with international best practices in countries where managed float arrangements are in operation.

“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange.

“These measures have helped to prevent a significant decline in our reserves. Our external reserves currently stand above $35 billion and are sufficient to cover seven months of import of goods and services.”
Inflation
On the inflationary considerations for its monetary policy measures, the apex bank stated: “Inflationary pressure persisted during the year due to several factors. In addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in VAT rate, petroleum prices, electricity price adjustments, farmer-herder clashes, exchange rate adjustment, and flooding that occurred in many parts of our farm belt areas. Inflation in October 2020 stood at 14.2 percent.

“We, however, expect inflation to begin to moderate by the first half of 2021 as efforts are being made to enable significant cultivation and production of key staple items in the dry season.”thr apex bank declared.