NIGERIA'S EXTERNAL RESERVE PLUNGES AGAIN NOW $37.63BN

Nigeria's gross external reserves continued its free fall last month despite a consistent improvement in earnings from crude oil in the first half of the year.

At a briefing shortly after the July session of the Monetary Policy Committee meeting held in Abuja Monday, Central Bank Governor, Mallam Sanusi Lamido stated that the nation's external reserves dropped to US$37.63 billion by June 23, 2010 representing a decrease of US$1.19 billion or 3.06 per cent when compared with the level of US$38.82 billion as at May 31, 2010.

According to the CBN boss, the Committee was however satisfied by the current level external reserves level was still adequate to finance 16 months of import, compared to the internationally recommended benchmark of 3 months of import cover for a country's external reserves.

It would be recalled that Nigeria's external reserves attained an all time high of over $67billion under President Olusegun's regime, but dropped marginally due to lump sum repayment made by the Federal Government to the Paris and London Club of Creditors.

However, outbreak of the global financial meltdown saw the late President Umar Yar'Adua administration falling back on the reserves to shore up the value of the naira against international shocks since late 2008.

Since then the government has continued to lean heavily on it to manage some of the pressing economic exigencies in the country.

Against the backdrop of the foregoing, the MPC noted with satisfaction the continued

macro-economic stability, but stressed the need to grow the real sector on a sustainable basis.

There are concerns in some quarters however that planned downward of the 2010 budget estimate by the Federal Government could mount additional pressures on the reserves, particularly as current global outlook for crude oil sales looks quite worrisome.

It was perhaps on the basis of that the Jonathan administration recently told the National Assembly to review downward some of the estimates including the benchmark price for crude from $67 to $57 per barrel.

Meanwhile the Central Bank of Nigeria (CBN) has concluded arrangements with manufacturers to inject an estimated N150 billion into the real sector as a way of boosting productive capacity, enhancing economic growth and 'as part of the need to grow the real sector on a sustainable basis'.

The fund is a drawdown from the N500 billion the apex bank earmarked earlier in the year to kick start the manufacturing and power sectors of the economy.

Governor, Mallam Sanusi Lamido Sanusi stated this while briefing the press at the end of the July session of the Monetary Policy Committee (MPC) meeting.

He expressed regret that the power sector which was to be the main beneficiary of the money was yet to put its acts together due the on- going reforms in the sector.

Sanusi also disclosed that the aviation sector, which was not originally in the schedule of beneficiaries of the facility was brought in to take advantage of the money.

Justifying this decision, he said that the CBN considered the safety of the nation's airspace. This was even as he stated that 'due to the sector's over exposure to the banking sector, the apex bank had to come in other to avoid a situation where in the process of trying to cut cost and service debts the aviation operators might begin to compromise on safety measures and standards'.

The banking sector regulator expressed its satisfaction with what it described as 'the continued macroeconomic stability' and cautioned against the 'possible inflation risks highlighted at the last MPC meeting in May'.

Sanusi said that this was predictable 'in the light of the anticipated budget deficit and the operationalization of the proposed Asset Management Corporation of Nigeria (AMCON)'

However, the CBN chief said that the monetary aggregates were still under-performing and noted that 'on balance, therefore, the inflation threat remained subdued in the short to medium term. In addition, some of the approved quantitative easing measures are yet to be completely implemented'.

In the light of this, Sanusi said that the committee 'considered it appropriate to continue to monitor developments with a view to intervening as the need arises'.

To ensure this, he said that the monetary policy rate (MPR) should remain unchanged at 6.0 percent. This was even as the 'asymmetric corridor of 200 basis points above and 500 basis points below the MPR, respectively are to be retained'.

However, monetary aggregates are still under- performing and the Asset Management Corporation is yet to take-off. On balance, therefore, the inflation threat remained subdued in the short to medium term. In addition, some of the approved quantitative easing measures are yet to be completely implemented.

The Committee, therefore, considered it appropriate to continue to monitor developments with a view to intervening as the need arises.