Nigeria’s foreign reserve increased by 2.94 percent between 31st March and 30th June this year. This was revealed in the latest foreign reserves figures from the Central Bank of Nigeria (CBN). Whereas Nigeria’s gross reserve was valued at $35.16 billion at the end of Q1 2020, it increased to $36.2 billion at the end of Q2 2020. However, there were increases and declines within months and across the quarter. For example, the country’s foreign reserve declined by $373.23 million from $36.57 billion on June 1 to $36.2 billion on June 29.
Since 2015, the trend of Nigeria’s foreign reserves has been of declines and unsustained increases. Increases were followed with declines and rebounds. An analysis by DATAPHYTE has indicated that Nigeria’s foreign reserve has had six main seasons of increases and declines since 2015 on a quarter by quarter bases The analysis highlighted the figure for the published last date in each of the quarters. For instance, the figure for Q1 2015 is CBN’s published figure for March 31st, 2015.
Although there was a decline in the reserve figure between Q1 and Q2 2015 and an increase between Q2 and Q3 2015, the first main season identified was between Q3 2015 and Q3 2016. Within those four successive quarters, foreign reserve declined persistently from $30.34 billion to $24.53. A relatively long session of rebound followed.
Between Q3 2016 and Q2 2018, foreign reserve figures increased by about 85 percent. From $24.53 billion at the end of Q3 2016, the figure went up to a peak of $47.79 billion at the end of Q2 2018. This peak in Q3 2018 remains the highest point of Nigeria’s foreign reserve between 2015 and 2020.
But the increases in the foreign reserve figures were not sustained. Between Q2 2018 and Q4 2018, Nigerian had entered a new season of decline. This was followed by a brief season of growth between Q4 2018 and Q2 2019. Between Q2 2019 and Q1 2020, another season of decline was observed. In the six and last season (between Q1 and Q2 2020), a slight increase of 2.94 percent was recorded.
While the growth prospects of Nigeria’s foreign reserves are unpredictable in the coming months, increases rather than declines will help the economy. Recall that a country’s foreign reserve is cash and other reserve assets held by a central bank that is primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.
Thus, increases in Nigeria’s foreign reserves will help defend the naira from devaluation, thereby saving the Nigerian economy. It will also ease the naira pressure in the parallel market and consequently defend the naira that has lost some value over the last couple of months.