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Nigeria need to grow its forex reserves further to support economy- B. Rewane

By on October 16, 2017 0 153 Views

Nigeria’s external reserves grew significantly in the last two decades, from $3.4bn in 1996 to an all-time high of $62.1bn in 2008. Image result for Nigeria dollar reserves

By August 2014, as the oil price shock gained momentum, Nigeria’s gross reserves level dropped to $39.6bn. Increased CBN market interventions, lower oil proceeds and capital flight all contributed to the sharp decline in external reserves to a decade low of $23.9bn in October 2016. 
After lingering between $30 -30.9bn in the first half of 2017, the external reserves crossed the $31bn threshold on August 29th, to settle at $32.7bn on October 3rd. 
The accretion was primarily due to the rise in oil revenues. Additionally, the introduction of the Investor & Exporter Foreign Exchange (IEFX) window helped boost investor confidence and foreign portfolio inflows. 
The accretion has some wondering if Nigeria has reached a point of comfort with its reserve levels. When measuring the sufficiency of a nation’s external reserves, it is generally accepted that there are four key considerations: import cover, broad money, current account deficit and the stress test. 
Of the four, the stress test is considered to be the most important because it determines the country’s vulnerability to possible crisis. 
A review of the four considerations demonstrates that while Nigeria performs well in the first three, it fails the fourth. 
Therefore, while the increase is positive, further growth is still needed if the country is to build resilience against external factors such as another global economic slowdown or oil shock.

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