Impact of IMF facility pushes up external reserves by 2.5%

THERE are indications that Nigeria’s external reserves have further risen to $34.78 billion, according to  figures from the Central Bank of Nigeria (CBN).

The external reserves rose 2.5 per cent when compared week by week (w/w) to US$35.0 billion as at May 14, 2020, a development that is attributable to the impacts of a new facility inflow to the country.

The data from CBN show that the external reserves increased sharply by $1.36 billion in just 13 days, rising from $33.42 billion as of April 29, 2020, to about $34.78 billion on May 12, 2020, reflecting the impact of Nigeria’s borrowing from the International Monetary Fund (IMF).

The Nigerian external reserves had been on a downward slide since last year, after hitting a high of $45.17 billion on June 11, 2019. It should be noted that the reserves lost over $11 billion within a space of 10 months.

The dramatic increase in the external reserves is coming against the backdrop of the recent disbursement of $3.4 billion emergency facility by the International Monetary Fund (IMF) to the CBN, over a week ago to help mitigate the impact of the coronavirus pandemic.

The IMF on April 28th approved the sum of $3.4 billion as financial assistance to Nigeria.

Based on the terms of the Rapid Financing Instrument, Nigeria is expected to pay back the loan between 3¼ to 5 years.

This is the first time in recent history that Nigeria is obtaining funding support from the IMF.

Following a lot of debate on the attributes of the $3.4 billion Financial Support, the IMF explained that it has various loan types for member countries depending on the reason for needing finance.

In this case, the loan was issued as an “Emergency Support” under its Rapid Financing Instrument facility that is likened to the operations of a corporative society.

Nigeria being a member country has what they call Special Drawing Rights, which allows the country to draw money in times of need to the maximum of her contribution to the fund.

The Rapid Financing Instrument is an IMF facility that is usually tied to funding arising from commodity price shocks, natural disasters, conflict and post-conflict situations, and emergencies resulting from fragility.

As such, it is rapidly approved. It is also available to member countries who have a major balance of payment problems.

Balance of payment refers to a situation where a country’s dollar inflow (supply)can no longer pay for its dollar outflows (demand). Nigeria’s balance of payment is estimated at $17 billion.

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