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Against the belief that the federal government has plundered and almost emptied the foreign reserves, data gathered from the Central Bank of Nigeria (CBN’s) website on Wednesday showed that the foreign reserves have increased slightly to $34.513 billion in the first six days of 2015.
The current value of the reserves represents an increase by $44 million, compared with the $34.495 billion it stood as at December 30, 2014.
The reserves had depreciated by $9.010 billion in 2014.
The central bank relies heavily on the external reserves to support the naira which came under intense pressure as a result of the falling crude oil prices.
Oil prices have fallen by over 50 per cent since the second half of last year.
The significant drop in the reserves had been attributed to the increasing appetite for forex despite the dwindling supply of the United States dollars in the country.
Specifically, the CBN had pointed out that the slide in crude oil prices, which has led to a reduction of earnings to the country has also resulted in the drop of US dollar inflow to Nigeria, adding that the country had spent huge assets from the foreign reserves in ensuring that the official exchange rate was maintained at its previous value of N155/$1.
The naira was recently devalued to $168 to a dollar.
The federal government has therefore faulted increasing allegations in some quarters that the administration of President Goodluck Jonathan has squandered the nation’s foreign reserves and Excess Crude Account (ECA), describing such positions as absolutely untrue.
It said from verifiable facts, it was clear that Nigeria’s reserves were not squandered but used appropriately in the course of normal transactions required for the development of the Nigerian economy.
Allegations that the Jonathan administration has frittered away the reserves and the ECA have been rife by opposition party members and former President Olusegun Obasanjo, among other critics, particularly since the prices of oil began a precipitous journey south.
But in a statement issued yesterday, the Ministry of Finance said it was absolutely untrue that the Jonathan administration had squandered the nation’s reserves, adding that the facts were clear and indisputable.
“At the end of May 2007, Nigeria’s gross reserves stood at $43.13 billion – comprising the CBN’s external reserves of $31.5 billion, $9.43 billion in the Excess Crude Account, and $2.18 billion in Federal Government’s savings. These figures can be independently verified from the CBN’s records. The figure of $67 billion cited in some recent commentary is therefore factually incorrect.
“This statement is issued to, once again, clarify the facts of the recent history and status of Nigeria’s Excess Crude Account and foreign reserves, an issue that is, in this election season, gaining more headline attention. Because of the importance of this key economic indicator, we believe it is important to restate the true position in the interest of the Nigerian public as well as local and international investors.
“It is a misconception to think that reserves are immutable or cast in stone. The reality is that since May 2007, the reserves have fluctuated in line with developments in the international oil market, rising from $43.13 billion at that time, peaking at $62 billion in September 2008 during the Yar’Adua/Jonathan Administration when oil prices reached a peak of $147 per barrel, and falling subsequently to a low of $31.7 billion in September 2011.
“This fall in reserves was largely a result of the vicissitudes of the global economy and oil market which caused the CBN to intervene, using some of the reserves, to defend the value of the naira,” the statement said.
It noted that the ECA is a component of the reserves, which was largely used to cushion the economy at the height of the global financial crisis in 2008-2009, adding that as a result, Nigeria was one of the few countries in the world that did not seek assistance from international financial institutions at that time.
“The fiscal stimulus used to shore up the economy during that period was shared by all 3-tiers of government. Similarly, savings in the ECA were also used to pay for fuel subsidies for the entire nation and that sharing continued after the crisis ended. Starting in 2012, such payments have been published each time they are made.
“Fourth, It is true the savings in the ECA would now have been higher but for the fact that a number of governors, against strong professional advice, actively kicked against continuous building up of the ECA and, indeed, pushed for its sharing. It is on record that states even took the Federal Government to court on this matter, and the case is still pending at the Supreme Court,” the statement added.
It stressed that it was also worth noting that the Jonathan administration built the first ever Sovereign Wealth Fund (SWF) for the nation in which savings are being made for future generations of Nigerians with important infrastructure investments being supported.
“It is also a matter of public knowledge that the Fund would have generated more savings and investments if the same sort of opposition that blocked savings in the ECA had also not been at work.
“Furthermore, by common agreement between the FGN and State Governors, in 2009, an amount of about $5.5 billion was drawn from the ECA and used for investment in Independent power projects. Today, various state governments are shareholders in the projects and hold share certificates confirming their stake in the projects.
“On the use of reserves, it is not correct to say that the nation’s external reserves were dipped into or misapplied by the administration. Anyone familiar with foreign reserves management will be aware that the Federal Government cannot dip its hands into the external reserves,” it pointed out.
According to the statement, like in other countries, the management of external reserves is one of the statutory mandates of the Central Bank of Nigeria (CBN), citing Section 2 sub-section (c) of the CBN Act (2007), which states that the apex bank shall “maintain external reserves to safeguard the international value of the legal tender” to defend the value of the naira.
The statement noted that no president has contravened this Act under the democratic dispensation.
“The reserves are also used to settle both public and private sector foreign currency obligations, including the importation of goods such as equipment for power sector. Whenever an agency of government or a private individual/company needs to make a payment in foreign currency (e.g. payment of goods and services, settlement of external debt, etc) it must provide the naira equivalent to the CBN in exchange for the required foreign currency,” it add
