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The efforts by the Central Bank of Nigeria to stabilise the naira at the interbank market depleted the nation’s external reserves by $4.9bn in the first quarter of 2015.
According to the CBN, the reserves fell by 14.3 per cent, down from $34.24bn at the end of December 2014 to $29.36bn at the end of March 2015.

The bank, in its latest External Sector Development Report for quarter one 2015, stated that the reserves for March 2015 dropped by $8bn when compared to what it was at the end of March 2014. It attributed the decline in the external reserves to its intervention at the interbank market, funding of the retail Dutch Auction system and the bank’s drive to stabilise the local currency.

It said: “The stock of external reserves at end-March 2015 stood at $29.36bn as against $34.24bn and $37.4bn recorded at end-December 2014 and end-March 2014, indicating respective depletion of $4.9bn or 14.3 per cent and $8bn or 21.5 per cent.

“The depletion was mainly due to the funding of the rDAS window and intervention at the interbank market to stabilise the naira exchange rate. The current level of external reserves, which is equivalent to 7.1 months of import commitment, could also finance 6.8 months of foreign exchange disbursements and 5.2 months of imports of goods and services.”

A breakdown of external reserves by holdings, according to the report, revealed that the share of the CBN portion maintained the lead at $24.99bn (85.1 per cent) of the total, while the portion of the federation reserves and the Federal Government reserves stood at $2.26bn (7.7 per cent) and $2.10bn (7.2 per cent), respectively.

It noted that the aggregate demand for foreign exchange by the authorised dealers consisting of rDAS and Bureau De Change operators in Q1 2015 amounted to $9.51bn as against $14.47bn and $16.2bn demanded in the preceding and corresponding quarters in 2014, representing declines of 34.3 and 41.3 per cent, respectively.

It also showed that the demand at the rDAS segment of the market was $8.65bn while that of the BDC segment amounted to $0.86bn in the review period. The aggregate supply of foreign exchange also declined. “The decline in both demand and supply could be attributed to the closure of the rDAS window in February, 2015 as part of the foreign exchange market reforms aimed at conserving external reserves and unifying the exchange rate as well as reducing the demand pressure in the market,” the bank said.

On the major uses of foreign exchange, the bank noted that in the first quarter of 2015, a total of $14.17bn was utilised for visible and invisible trade as against $17.45bn and $18.13bn in the preceding and corresponding quarters in 2014, respectively.

This, it said, indicated declines of 18.8 and 21.8 per cent, respectively.
“Out of the total amount utilised, visible imports at $8.43bn accounted for 59.5 per cent of the total, while invisible imports valued at $5.74bn accounted for the balance,” the report said. The amount utilised on sectorial basis revealed that the importation of oil, industrial, food and manufactured products accounted for 19.8, 17.5, 10 and nine per cent of the total amount, respectively.

In addition, out-payments in respect of financial, business, transportation, communication and education services accounted for 32.5, 3.4, 1.2, one and 0.8 per cent of the total amount utilised, respectively, while others took care of the balance.

A further analysis revealed that out of the amount utilised for visible imports, oil gulped $2.81bn or 33.3 per cent while that of industrial, food and manufacturing sectors amounted to $2.48bn, $1.42bn and $1.28bn, and accounted for 29.4, 16.8 and 15.2 per cent of total visible imports, respectively. “Other sectors accounted for the balance. Invisible imports on the other hand was dominated by financial services, which utilised $4.61bn (80.2 per cent), while business, transportation and educational services utilised $0.48bn or 8.4 per cent, $0.18bn (three per cent) and $0.12bn (two per cent), respectively. Other services accounted for the balance,” the CBN said.

In their analysis on the Q1, 2015 report, analysts at FBN Capital Research in a report made available to, stated that the CBN’s External Sector Development Report for the review period showed a weaker performance on the capital account.
They noted that the aggregate in-flows (gross) declined gently from $2.64bn in the previous quarter to $2.52bn, of which other investments (loans, essentially) accounted for $1.39bn.

“The decline was far greater on a year/year basis since the earlier period predated the slide of the oil price and the resulting exposure of Nigeria’s Achilles heel,” they said.

The FBN Capital analysts further explained that the fall in the reserves might warrant a third devaluation of the naira within a year.

By Pita Ochai


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