Nigeria’s external reserves on Wednesday fell below $36 billion mark, touching its lowest levels in 29 months.
The reserve which shows the nation’s ability to weather external shocks dropped to $35.9 billion from a $36.02 billion level on Tuesday, 17th March, according to Central bank’s data.
That’s the lowest level since October 2017, when the country managed to limp out of a five-quarter negative growth. External reserves at the time stood at $34.3 billion
Although $35.9 billion in reserve is still comfortably higher than the Central bank’s $30 billion limits for a devaluation, analysts bet an adjustment of the currency if the current fall in oil prices continues.
Nigeria’s external reserve has maintained a downward trend since the start of the year, and worsened further with the collapse in oil prices, as the apex bank continues to defend the naira which analysts say is overvalued, from falling against the dollar.
Crude oil prices which happens to be Nigeria’s biggest earner of dollar liquidity has since taken a beating, due to a combination of factors including the coronavirus pandemic which has slowed demand for oil as more and more countries enact strict travel ban to contain the spread; and failure between two of the world’s biggest exporters of oil to reach an agreement on a supply cut and bury the hatchet of an oil price war.
The price of Brent crude has bottomed as low as $25 per barrel, even lower than what it traded in 2016 when the international market last witnessed an oil supply glut, prompting analysts to believe oil prices could go as low as $20 per barrel when Saudi increases oil exports to 10 million barrel in April, as predicted by Goldman Sachs.
The fall in the oil price which has gone twice as less the amount in which Africa’s biggest oil producer, pegged its initial budget at has aggravated foreign portfolio sell-offs over the fear that the apex bank might fall short of ammunitions to keep the naira stable
In the last primary market OMO auction Thursday, the CBN made zero sales as it failed to offer at high rates to portfolio investors who see it as too risky to invest in Nigerian assets.
For portfolio investors, it makes no business sense sticking to the CBN’s low yields in the primary when the can get yields at higher levels in the secondary market.
Oil prices later egged up to $27 per barrel after Donald Trump said at an appropriate time, he would intervene in the standoff between Saudi Arabia and Russia.