By Samuel Ajayi
ABUJA (Sundiata Post) For some time now, Buhari handlers and his social media projectors have been hammering on the fact that his government has improved our foreign reserve. In fact, they claim it is now hovering around $50billion.
Good development but credit does NOT belong to Buhari and his misfiring economic advisers. It actually belongs to oil prices that went up.
As at yesterday, at the Western Texas Intermediate, WTI, the price of crude oil was $64.65 per barrel. Our own Brent Crude was $68.84 per barrel. There was a time it was as low as $28 per barrel.
Now, to the main issue.
The higher crude oil price goes, the more our foreign reserve rises. It is a NATURAL sequence. It is an international practice that a percentage of your foreign earnings goes into the foreign reserve for balance of trade reasons.
As for Nigeria and our notoriously incurable penchant to import even water and tooth pick, there is a near eternal pressure on our foreign reserve to meet daily demand for dollars.
Secondly, many Nigerians still see spending dollars as a status symbol. Therefore, a considerable percentage of foreign currency is kept by Nigerians for SPECULATIVE purposes rather than TRANSACTIVE purposes. And this is common among politicians and top businessmen. What you can give someone Naira for, you give dollars!
Against this background, there is always pressure on our foreign exchange and by extension, foreign reserve. Reasons why the higher crude oil price goes, the more dollars we have and less pressure on the Naira at the foreign exchange market.
The only good thing this government did was to remove FORTY-ONE items from the foreign exchange list. In other words, you cannot request for dollars from CBN for those items.
Having said this, there is nothing to gloat over about foreign reserve. If crude oil prices drop today, we are in trouble again. How? We have to dip into our foreign reserve to finance our balance of trade since we will be earning less dollars and our importation may not reduce.
That’s the lot of a country that is not in control of its ECONOMIC DESTINY…
Source: Facebook