Forex Reserves Gain Positive Momentum, Rise for Five Straight Days

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.