By Stanley Oronsaye September 30, 2010

Nigeria’s foreign reserves dropped to $35.66 billion as at Monday, the lowest level in over four years.The reserves, which peaked at $62.24 billion in mid-May 2008, have fluctuated ever since due to huge withdrawals by government. The last time the reserves stood near this level was around April 2006.

The latest figure, which closed at $36.54 billion last month, signifies a net withdrawal of $880 million (N132 billion). This is in addition to the savings that would have been done during the period, especially with oil selling at over $70.The Central Bank (CBN), at the last Monetary Policy Committee meeting held in Abuja at the beginning of the month, expressed concern that huge spending in an election year and implementation of new salary structure in the civil service may create inflationary pressure in the economy. The MPC subsequently raised the benchmark interest rate from 4.2 percentage points to 6.25 percent.

No devaluation

Lamido Sanusi, the Central Bank governor, said recently that the regulator does not intend to devalue the naira. This reassurance came after the naira had depreciated for two weeks consecutively, dropping to its lowest level in 13 months on Monday.According to Mr. Sanusi, the CBN would continue to meet genuine demands for foreign exchange.

“The Committee would continue to monitor developments in the market to ensure that measures are taken to eliminate speculative demand and exchange rate volatility,” said Mr. Sanusi, at the end of the MPC meeting.He, however, attributed the increased demand for foreign exchange to dividends remittance by some companies and enhanced importation of refined petroleum products, due to the Federal Government sovereign debt instruments.Analysts at FSDH Research, a financial services and research firm, however, blame the drop in the value of the naira on the huge demands which were not met by the Central Bank.

“We expect the CBN to increase the amount of foreign exchange on offer in order to douse the rising demand for foreign exchange and to ensure that the value of the naira remains stable and within the limit of three percent.”

Depleting reserves

Samuel Nzekwu, former president of the Association of National Accountants of Nigeria (ANAN), said the steady depletion of the foreign reserves has far reaching effects on the economy.He said the depletion may invariably lead to depreciation in the value of the local currency, which can equally send early warning signals to Nigeria’s trading partners.

“It is not a good omen, although it is not bad if we were using the reserves to develop infrastructure. In this case, we don’t know what the money is used for.“We know election costs a lot of money, but you cannot hide under election to spend money anyhow. Unemployment is rife, armed robbery and kidnapping have become the order of the day. My problem is that we do not even know what the CBN is doing. They come up with different policies every day,” he said.

He noted that the excessive spending by government, which has led to the near exhaustion of the Excess Crude Account (ECA), will inevitably lead to inflation.The ECA, which stood at over $20 billion in 2007, is now about $500 million.

Source:NEXT