Forex Reserves Gain Positive Momentum, Rise For Five Straight Days

By Obinna Chima

Nigeria’s foreign exchange (forex) reserves have maintained positive momentum this month rising slightly for five consecutive days.

Data gathered from the Central Bank of Nigeria (CBN) website at the weekend showed that the reserves derived mainly from the proceeds of crude oil sale, climbed from $26.373 billion as at June 2, 2016, to $26.401 billion as at June 8, 2016.

The slight uptick was primarily due to a rise in crude oil prices, which climbed to $51 per barrel last week. Oil prices fell about three per cent on Friday after data showed the United States oil drilling rig count rise for a second week in row and a stronger dollar weighed on demand for greenback-denominated crude futures.
Nevertheless, Nigeria still faces macro-economic challenges, which have seen outflow of both foreign portfolio investors as well as foreign direct investments. Disruptive activities of the militant group, Niger Delta Avengers, in the oil-producing Niger Delta have sent Nigeria’s oil production to a multi-year low of 1.7 million barrels per day (mbpd). Alhough oil prices are trading above $50/barrel on the back of this, price gains will not be enough to compensate for lost output by the country.

It appears that the worst is far from over as the militant group has continued to threatened more attacks in weeks to come. Furthermore, expectations of a truce appeared to have been dashed after the Avengers stated that, contrary to news reports, it is not – and will not be – engaging in any dialogue with the government.

“By implication, funding the recently-passed N6.1 trillion budget may become something of a tall order if militant attacks persist, as Nigeria’s crude production target of 2.2mb/d is already appearing unrealistic,” analysts at CSL Stockbrokers Limited stated in a report.

Analysts at FBN Quest noted the peak in crude oil price from its recent floor in January, saying the budget assumption of $38 per barrel has started to look conservative. They predicted an end-2016 spot price for Bonny Light of $55 per barrel.

“The success of the President Muhammadu Buhari agenda rests upon whether its expansionary fiscal stance will deliver the capital spending and the jobs to make its contribution to a revival in the economy. This, in turn, requires that it comes close to hitting its ambitious targets for non-oil revenue generation.
“These are heady projections and the impact of the 2016 budget will not be felt much before the end of the year. Beyond the fiscal, the FGN would do well to clarify its policies and trumpet its successes, given the limits on the patience of voters and markets,” FBN Quest added.

They also predicted that there would be unexciting growth this year and next. Analysts at the firm also projected that a combination of government spending, sector-specific reforms and a modest rise in oil revenues should deliver unexciting growth of 3.5 per cent in 2017.

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