The $4.2 billion of the country’s foreign exchange (FX) reserves spent by the Central Bank of Nigeria (CBN) on the foreign exchange market as interventions to stabilising the economy may have negative effects on the nation’s balance of payments, according to economists.
With bulk of monetary payments into the country coming from oil receipts, the country’s balance of payment, although surplus by $7.3 billion as at the first quarter of the year is left vulnerable with increasing outflows as global external conditions remain challenging, they opined.
Balance of payment essentially provides a record of monetary transactions between a country and the rest of the world, consisting of a country’s monetary payments to and from foreigners.
The $4.2 billion spent in H1 2018 was in the form of interventions in the foreign exchange market to shield businesses and bank assets from total collapse as foreign investors continue exiting emerging economies such as Nigeria, Godwin Emefiele, governor of the CBN explained recently.
Despite such noble intentions, economists are stiff worry that the continuous depletion of official reserves would impact negatively on balance of payment positions.
Speaking on the decision to maintain its stance on stabilising the economy via predictable exchange rates for the benefit of businesses, Emefiele told journalists following the conclusion of the IMF/world Bank annual meetings that rising debt obligations will continue to be addressed by the fiscal and monetary authorities through creative ways to increase revenues but a country specific approach towards mitigating global risks such as the defense of the local currency, naira remains paramount to the CBN.
He explained that because emerging economies are price takers, the US policy normalisation will continue to adversely affect countries and it is expected that public debt service cost will rise, possibly resulting in weakening of asset in various banking systems and also weakening the financial condition in the emerging market and frontier economies.
He however alluded to the decision taken at the annual meetings that different countries should implement country specific policies to protect against shocks that are considered to take a while and seen to have adverse consequences on the different economies