Nigeria’s foreign exchange reserves gained $3.98bn in three weeks, rising above the $40bn mark, the Central Bank of Nigeria has said.
External reserves are a nation’s backup funds in case of an emergency, such as a rapid devaluation of its currency.
According to CBN data, the reserves rose to $40.76bn on October 20 from $36.78bn as of the end of September.
The reserves, which had maintained a growth trajectory in recent weeks, rose by $2.76bn in September from $34.02bn at the end of August.
Former director-general, National Centre for Economic Management and Administration, Ibadan and professor of economics, Mike Obadan, said the value of a country’s currency is determined by the strength of the economy in terms of its production capacity and productivity, structure, and diversification of the export production base.
Obadan said, “a vibrant and diversified productive real sector of the economy saves a nation the disbursement of scarce foreign exchange for the import of finished goods and production inputs, especially where these could be produced locally, and reduces pressure on foreign exchange demand.
“In the same way, an export-oriented production base contributes substantially to foreign exchange supply which in turn strengthens the local currency.
“But in Nigeria, these desired attributes have not been achieved. Hence, the heavy dependence of the country on the oil sector for foreign exchange and government revenue creates instability in the naira exchange rate.”
According to him, there is a direct correlation between the oil market and the naira exchange rate.
“When the oil market is enjoying a boom, other things being equal, the naira exchange rate strengthens/appreciates. But when there is a slump in the market, characterised by low prices, accretion to external reserves drops and the naira exchange rate depreciate,” Obadan said.