3 January 2014

Nigeria: 2013 - Foreign Reserves Drop By U.S.$5.2 Billion in Seven Months

Nigeria's foreign reserves suffered massive depreciation of $5.2 billion (N832 billion) in seven months, declining from the peak of $48.85 billion attained on May 2, to close the year at $43.61 by December 31, 2013.

The reserves, which had immense opportunity for growth during the last year, in view of the mostly favourable oil prices, however could not, as a result of the drop in government revenue occasioned by crude oil theft and pipeline vandalism; increased government spending from the Excess Crude Account; and increase in the amount spent in defending the naira by the Central Bank of Nigeria (CBN) among others.

According to the latest figure released by the CBN on its website, the reserves dropped to $43.6 billion on December 31, 2013, approximately $500 million below the $44.1 billion recorded on December 28, 2012.

The $43.6bn also shows that the reserves fell by about $700m below the $44.3bn it recorded on January 2, 2013.

The reserves, which started the year at $44.3bn, began rising through the year and peaked at $48.857bn on May 2.

However, the foreign reserves started falling gradually since May. The reserves had fallen to a nine-month low at $45.08bn on October 14.

Between May 2 and August 5, 2013, the foreign reserves dropped by $1.8bn from the peak of $48.85bn to $46.98bn.

The Governor, Central Bank of Nigeria, Mr Lamido Sanusi, said in May that the outlook for the country's foreign reserves this year was mixed. Sanusi told Reuters that the reserves would probably keep expanding, while facing risks from lower-than-projected oil output and falling prices.

According to analysts, the performance of the reserves is driven mainly by proceeds from crude oil, gas exports and crude oil-related taxes as well as reduced funding of the Dutch Auction System on the account of huge inflow of foreign portfolio investments.

However, the CBN governor recently dismissed claims that the reserves were experiencing a sharp decline.

He also allayed fears about the uncertainties in the Nigerian economy and stressed that the reserves could finance about 11 months of importation.

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