Foreign Reserve dips to $50bn Wednesday, January 28, 2009
Central Bank of Nigeria (CBN) on Tuesday confirmed the drop in Nigeria's foreign reserve. Daily Sun exclusively gathered that the reserves, which stood at $52.82 billion as at December 31, 2008, declined to $50.58 billion as at January 26, 2009. The depletion of the reserve was borne out of pressure on Nigeria’s CBN to defend the value of naira in the face of dwindling revenue from oil sales due to global recession.
Nigeria started building its foreign reserves since 1999 and reached the highest levels of $64.73 billon in August of 2008. Since the global economy slipped into recession, the nation’s reserve has been on an ever increasing rate of decline.
CBN’s Monetary Policy Committee (MPC), at its last monthly meeting in Abuja had expressed concern about the effect of the continuing slide in oil prices on the domestic economy and assured that appropriate policy measures would be adopted to minimize the overall impact on the wider economy.
Nigeria’s dependence on oil for over 90 per cent of its foreign exchange earnings makes its capital account vulnerable to the fluctuations in crude oil prices. This, in addition to its high import bills contributed to the fluctuations in the level of reserves over the years and consequently the way the reserves are being managed.
During the oil boom of the mid-seventies, which has resulted in the build up of reserves, the external reserves were diversified into an array of financial instruments including foreign government bonds and treasury bills, foreign government guaranteed securities, special drawing rights (SDRs), fixed term deposits, call accounts and current accounts. This provided significant investment income, as well as liquidity.
However, during the glut in the global oil market which led to collapse in the crude oil prices and consequently a draw down in the reserves, the reserves were held mainly in current accounts and treasury bills. This underscored the need to diversify the sources of foreign exchange inflow of the country.
Sources at the CBN revealed that Nigeria’s external reserves derive mainly from the proceeds of crude oil production and sales. Nigeria produces approximately 2,000,000 barrels per day of crude oil in joint venture with some international oil companies, notably Shell, Mobil and Chevron. Out of this, Nigeria sells a predetermined proportion directly, while the joint venture partners sell the rest. The joint venture partners pay Petroleum Profit Tax to the Federal Government through the Federal Board of Inland Revenue.
Global economic down-turn and activities of the Niger Delta militants have impacted negatively on proceed from oil sales just as crude price drop below $40. This, according to market analysts, is already jeopardizing 2009 budget, which was benchmarked on a $45 per barrel of crude oil as against $59 of last year and a deficit of N1.09 trillion or 3.95 per cent of Gross Domestic Product (GDP) and a forecast production of 2.292 million barrels of crude oil per day.
According to President Umaru Musa Yar’Adua, the 2009 budget would seek to tackle critical areas of national needs such as power supply, education, security, Niger Delta, human capital development, critical infrastructure, land reforms, food security and agriculture. For critical infrastructure, the Federal Government planned to spend N361.2 billion in 2009. This include N88.5 billion for power, aviation N15.4 billion, petroleum resources N26.5 billion, works N129.3 billion, transport N35.2 billion and N48.7 billion for critical infrastructure within the federal territory.
Key projects that would be funded by the 2009 budget includes: Mambilla Hydro-electric power generation project for which N3.5 billion was budgeted, N21.5 billion for other Generation projects (including N6.5billion for the completion of the Niger Delta Power Holding Company’s NIPP projects), N32 billion for Transmission projects, and N19.25 billion for Distribution projects.
The President also voted N18.6 billion on other projects in the Niger Delta particularly the establishment of two sophisticated skills acquisition centres to help the youths from the region to acquire skills relevant to the energy and petrochemicals industry.
Central Bank of Nigeria (CBN) on Tuesday confirmed the drop in Nigeria's foreign reserve. Daily Sun exclusively gathered that the reserves, which stood at $52.82 billion as at December 31, 2008, declined to $50.58 billion as at January 26, 2009. The depletion of the reserve was borne out of pressure on Nigeria’s CBN to defend the value of naira in the face of dwindling revenue from oil sales due to global recession.
Nigeria started building its foreign reserves since 1999 and reached the highest levels of $64.73 billon in August of 2008. Since the global economy slipped into recession, the nation’s reserve has been on an ever increasing rate of decline.
CBN’s Monetary Policy Committee (MPC), at its last monthly meeting in Abuja had expressed concern about the effect of the continuing slide in oil prices on the domestic economy and assured that appropriate policy measures would be adopted to minimize the overall impact on the wider economy.
Nigeria’s dependence on oil for over 90 per cent of its foreign exchange earnings makes its capital account vulnerable to the fluctuations in crude oil prices. This, in addition to its high import bills contributed to the fluctuations in the level of reserves over the years and consequently the way the reserves are being managed.
During the oil boom of the mid-seventies, which has resulted in the build up of reserves, the external reserves were diversified into an array of financial instruments including foreign government bonds and treasury bills, foreign government guaranteed securities, special drawing rights (SDRs), fixed term deposits, call accounts and current accounts. This provided significant investment income, as well as liquidity.
However, during the glut in the global oil market which led to collapse in the crude oil prices and consequently a draw down in the reserves, the reserves were held mainly in current accounts and treasury bills. This underscored the need to diversify the sources of foreign exchange inflow of the country.
Sources at the CBN revealed that Nigeria’s external reserves derive mainly from the proceeds of crude oil production and sales. Nigeria produces approximately 2,000,000 barrels per day of crude oil in joint venture with some international oil companies, notably Shell, Mobil and Chevron. Out of this, Nigeria sells a predetermined proportion directly, while the joint venture partners sell the rest. The joint venture partners pay Petroleum Profit Tax to the Federal Government through the Federal Board of Inland Revenue.
Global economic down-turn and activities of the Niger Delta militants have impacted negatively on proceed from oil sales just as crude price drop below $40. This, according to market analysts, is already jeopardizing 2009 budget, which was benchmarked on a $45 per barrel of crude oil as against $59 of last year and a deficit of N1.09 trillion or 3.95 per cent of Gross Domestic Product (GDP) and a forecast production of 2.292 million barrels of crude oil per day.
According to President Umaru Musa Yar’Adua, the 2009 budget would seek to tackle critical areas of national needs such as power supply, education, security, Niger Delta, human capital development, critical infrastructure, land reforms, food security and agriculture. For critical infrastructure, the Federal Government planned to spend N361.2 billion in 2009. This include N88.5 billion for power, aviation N15.4 billion, petroleum resources N26.5 billion, works N129.3 billion, transport N35.2 billion and N48.7 billion for critical infrastructure within the federal territory.
Key projects that would be funded by the 2009 budget includes: Mambilla Hydro-electric power generation project for which N3.5 billion was budgeted, N21.5 billion for other Generation projects (including N6.5billion for the completion of the Niger Delta Power Holding Company’s NIPP projects), N32 billion for Transmission projects, and N19.25 billion for Distribution projects.
The President also voted N18.6 billion on other projects in the Niger Delta particularly the establishment of two sophisticated skills acquisition centres to help the youths from the region to acquire skills relevant to the energy and petrochemicals industry.