Pressure on the Nigerian reserves has forced it to shed $203.9m in August, despite crude prices above the country’s budget benchmark.
Reserves fell 0.51 per cent to $39.015bn as of August 30, 2022 according to the movement of reserves data of the Central Bank of Nigeria,
By July ending this year, the CBN data revealed that foreign exchange reserves closed at $39.219bn.
The fall comes amidst a $100 crude oil average price in August against a benchmark of $62 per barrel set by the Federal Government for N17.12trn budget.
Since the invasion of Ukraine by Russia, crude oil prices have been at its highest level since 2020 when Covid-19 pandemic led to global lockdowns.
Nigerian reserves are largely dependent on foreign exchange proceeds from crude oil exports.
Other assets that make up the reserves are Gold coin or bullion; Nigeria’s Gold Tranche in the International Monetary Fund (IMF); Allocation of Special Drawing Rights (SDR) made to Nigeria by the IMF; Treasury bills having a maturity not exceeding one year issued by the government of any country outside Nigeria whose currency is freely convertible and Securities of, or guarantees by, a government of any country outside Nigeria whose currency is freely convertible provided such securities shall mature in a period not exceeding ten years.
Reserve assets serve many purposes but are most significantly held to ensure that a government or its agency has backup funds if their national currency rapidly devalues.
At the July Monetary Policy Committee meeting, the apex bank had noted the “marginal increase of 1.61 per cent in the level of external reserves to $39.22bn at end-June 2022 from $38.60bn at end-May 2022 due to the increase in inflows from non-oil sources.”
The Nigerian government said it loses 700,000 barrels of oil every day to oil theft at a monthly rate of $1.9bn.
Nigeria has been unable to meet its 1.8 million barrels production quota by the Organisation of Petroleum Exporting Countries.
The country produced 1.24m barrels per day in April and has produced below 1.4m barrels per day, according to the Nigerian National Petroleum Company Ltd.
This impacts foreign exchange swap transactions and crude oil-related taxes and penalties.
In the first half of 2022, the National Bureau of Statistics revealed that the sector contracted by 11.77 per cent in Q2 2022, representing an increase of 0.89 percent points relative to the rate recorded in the corresponding quarter of 2021.
On a quarter-on-quarter basis in 2022, the sector recorded a negative growth of -4.97 percent in Q2 2022 and contributed 6.33 percent to the total real GDP in Q2 2022.