Nigeria: Niger Delta Crisis Hits External Reserves

Finally, the chicken is coming home to roost. The Niger Delta crisis – which has dealt a heavy blow to Nigeria’s oil income and crude production – is finally threatening to consume the country’s foreign reserves which had been the saving grace in the current global financial meltdown.

With Nigeria now losing an average of $1 billion in oil revenue every month as a result of production shut-ins rather than a fall in crude oil prices, the Central Bank of Nigeria (CBN) may no longer be able to defend the current value of the naira, it has emerged.
The reserves, which peaked at about $62 billion in 2008, could fall to below $40 billion soon if the CBN continues to draw from it to protect the naira by meeting foreign exchange demand at its weekly auctions.

The reserves dipped to $50.11 billion in January 2009 and now stand at $43.46 billion with bleak prospects for recovery as the nation grapples with falling production as a result of militant activities.

Nigeria is unable to benefit from the slight recovery in crude prices, which appear to be stabilising at $60 per barrel – $15 above Nigeria’s budget benchmark.

CBN has virtually become the only supplier of forex to the economy since the onset of the financial crisis, as other sources have dried up, thereby putting pressure on the apex bank to withdraw from the reserves to defend national currency.

AllAfrica