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CBN and Nigeria’s External Reserves

When the news broke a few weeks ago that the balance on the nation’s gross external reserves was considerably below the advertised figures, concerns rose about the economy’s welfare. The news was particularly troubling because the balance on the reserves at $15 billion, contrary to the official claim of $36 billion, is barely enough for three months of imports. The concerns about the economy were already high, to begin with. Weeks before, the Federal Ministry of Finance drew attention to the fact that the nation spent far more servicing its debt, at N1.9 trillion in the first four months of this year, than government’s income of N1.3 trillion over the same period. At more granular levels, rising domestic prices continue to drive up living costs, even as inflation, which stood at 18.60 per cent in June as against 17.71 per cent in May, wipes out domestic savings. Thus diminished, consumer spending is forcing businesses to lower activity levels – and in the process push unemployment rates further up, from the National Bureau of Statistics earlier recorded 33.3 per cent.

Of course, these signals from the main economic indices run in the face of the economy’s fundamentals. At about $445 billion, the size of the domestic economy more than supports its entire debt stock. However, with a tax-to-GDP ratio of about 8 per cent, it is easy to see how a 23.27 per cent debt-to-GDP ratio could begin to hurt. Yet, these numbers only tell one part of the story of the…

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