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CBN Moves to Avert Danger to External Reserves

Daily Trust
Idris Ahmed
1 Oct. 2008

The global economic meltdown threatened danger for this country's external reserves with the Central Bank of Nigeria (CBN) saying yesterday that efforts are in top gear to diversify Nigeria's external reserves from the United States dollar to other currencies.

The country's foreign reserves now stand at about $62 billion. Most of it is invested in the US dollar and is managed by fourteen fund managers selected by CBN.

The dollar's value has consistently declined in recent months, a situation that is worsened by the current global market crunch that threatens the entire world economy.

Speaking to Daily Trust yesterday, CBN spokesman Mr. Festus Odoko said even though those in authority were taking appropriate steps towards diversifying the foreign reserves, some would still be invested in dollars to aid foreign exchange. He said, "There is progress towards diversifying the foreign reserves, but we would still maintain some in dollars because most of the foreign transactions are done in dollars.

Moreover, if we are diversifying, we should know the currency we are diversifying. External reserves mean external exchange and it increases as you earn it and decreases when you spend. Since we still do our conversions in dollars, we would still maintain some reserves in dollars." An economic expert however said investing all the country's reserves in dollars would be a big mistake. Dr. Obadiah Mailafia, Chairman of the Centre for Policy and Economic Research, Abuja said diversifying the country's reserves is an option that must be considered. He said keeping all our reserves in dollars may be a great risk, as we may already have lost some 20% of our national wealth by virtue of the dollar's decline over the last three years. According to him, countries such as Iran long ago took a decision to move their reserves into the euro area. Any precipitate action in this regard, he said, would be untoward. "But our monetary authorities must keep clear this possibility as an option in case the current turbulence transmutes into a cataclysm", he said.

Mailafia added, "Investing our foreign reserves in a different currency is an option we should not foreclose. It is a long term option we should not foreclose. Over the years, the US economy has witnessed restructuring. There is going to be a massive outflow from a dollar zone to the Euroland zone. Obviously, that would further decline the value of dollars. In that respect, it is necessary to consider another option but doing that for now may be premature but we have to take a long term measure. Really, for us, diversification is very important. In the long run, we have to consider that option.

He also said "the reason why dollar is still strong is because everybody believes in it. Investing in other currencies is an option that we must not foreclose but study the current trend and if it is in the national interest to move, then move."

The present Federal administration will not resort to quick-fix methods and short-cuts in solving the country's fundamental problems because they require methodical and sustainable solutions, President Umaru Yar'adua declared in a special 48th Independence Day broadcast this morning. He said "the review of key sectors of our national economy, which we have embarked upon so far, points to the wisdom of this approach."

Yar'adua said his Administration came into office with a resolve to frontally face up to Nigeria's development challenges, and set the nation on an assured path to becoming a properly grounded stable democracy and one of the world's twenty largest economies by the year 2020.

He said, "We are under no illusion as to the complexity and magnitude of the task we have set ourselves. We understand that sustained economic growth is only possible if peace, security and stability are assured. We recognize that constructive engagement and productive partnership with all major stakeholders and our development partners are vital imperatives. We are aware that single-minded, people-focused, results-oriented, creative, sincere and courageous leadership is critical."

He said his Seven-point Agenda is aimed at a structured approach to tackling the challenges which Nigeria must overcome "if we are to sustainably raise the living standards of Nigerians, achieve the Millennium Development Goals (MDGs) and realize our Vision 20-2020."

According to the president, the Nigerian economy is on a strong footing with an average growth rate of about 6.9%, a single digit inflation rate, external reserves of about 63 billion dollars, and the Naira appreciating steadily against the major currencies. "This is a consequence of our policies aimed at maintaining relative stability and predictability in Nigeria's macro-economic environment," he said. He however said, "We are aware that our physical infrastructure deficit cannot sustain the level of economic development which we envision for Nigeria. This brings to the fore the imperative to rapidly rebuild, maintain, upgrade, and expand our critical infrastructure. In our quest for practical solutions to our endemic energy problems, we have set in motion far-reaching reforms which have started to yield some positive results."

He also said the Federal Government would soon concession the most economically viable roads across the country and pursue an aggressive road sector development and maintenance program, which he said would cover 5,700 kilometres.

Yar'adua said, "With the railways, we plan to concession some existing routes including the Western and Eastern rail lines as well as the uncompleted Central line; while rehabilitating and expanding the existing rail system. Notably, the Infrastructure Concession Regulatory Commission is expected to commence work shortly."

He also said his administration has pursued a policy of sustained support for small scale farmers and intends to utilize the Natural Resources Development Fund to boost domestic production of food crops and development of agro-allied industries.

Copyright © 2008 Daily Trust

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May we be strengthened with the ability, willingness and capabilities to be good ambassadors of Nigeria contributing to its uplifting, rather than its detriment. - Cxsm