Fact Check: Did Obasanjo really inherit $3 billion in foreign reserves?
By Nelly Kalu
CLAIM: A twitter user, Chijioke, claimed that former President Olusegun Obasanjo inherited $3bn and left $54bn in foreign reserves when he left office.
VERDICT: False. In 1999 when Obasanjo assumed office, Nigeria’s foreign reserve was US$5.65billion and US$51.91billion in 2007 when he left office.
A twitter user, Chijioke, claimed that former President Olusegun Obasanjo met $3 billion and left $54 billion in foreign reserve at the end of his eight years in office.
He tweeted on his handle, @Ekwulu, that “OBJ has just stirred the hornet’s nest and the BMC will come for him. OBJ inherited a Pariah state courtesy of Abacha, foreign reserves of about $3 Billion, oil price of between $10-$11, then Billions of dollars in debt. He paid off our debts and left about $US54 Billion in reserves.”
This comment is only one of many debates and opinions on social media triggered by President Obasanjo after saying that the country has never been in such a bad state. In a report by the Punch Newspaper, the former President said this in Abuja at a consultative dialogue attended by various socio-cultural groups including Afenifere, Middle Belt Forum, Northern Elders Forum, Ohanaeze Ndi Igbo and Pan Niger Delta Forum,
“I do appreciate that you all feel sad and embarrassed as most of us feel as Nigerians with the situation we find ourselves in. Today, Nigeria is fast drifting to a failed and badly divided state; economically our country is becoming a basket case and poverty capital of the world, and socially, we are firming up as an unwholesome and insecure country,” he was quoted as saying.
This twitter handle has a following of 13, 200, and the engagements on this tweet continue to rise. So far, it stands at almost 400.
What are Foreign Exchange Reserves?
The Central Bank of Nigeria (CBN) defines Foreign exchange reserves as assets held on reserve by a monetary authority, like the CBN, in foreign currencies. These reserves back liabilities and influence monetary policy. They include foreign banknotes, deposits, bonds, treasury bills and other foreign government securities. These assets serve many purposes but most significantly they ensure that a government or its agency has backup funds if their national currency rapidly devalues or to pay for imports by way of letter of credit. Foreign exchange reserves are also called international or external reserves.
Do all countries hold foriegn reserves in the same capacity?
No. The capacity for holding foreign reserves, known as foreign reserve behaviour, differs across countries. For instance, developing countries hold more reserves than in developed countries. Before the 1990s developing countries could hold enough reserves to equal at least three months of imports.
This practice was replaced by the Guidotti-Greenspan rule after the emerging market crisis of the 1990s. The Guidotti rule pertains to reserve adequacy metric that determines that developing countries should hold enough reserves to cover all foreign short-term debt or those within one-year maturity. It served as a precautionary measure, to self-ensure against the effects of future crises such as massive withdrawals of short-term foreign capital.
The official website of the Central Bank of Nigeria is the accessible monetary data bank and referral for information on the country’s financial system. This data bank serves the World Bank, International Monetary Fund (IMF), and other financial-economic publications.
Dubawa gathered information from this website as well as graphical representations on other financial publications such as DataBod, The Global Economy.com
Nigeria’s external reserves are largely from the proceeds of production and sales of crude oil.
In 1999 at the beginning of the current democratic dispensation under President Olusegun Obasanjo, Nigeria’s foreign reserve stood at US$5,649,775 (approx. 5.65billion) by the end of his government by 2007 the reserve stood at US$51.907,040,000 9 (approx. 51.91billion).
By 2008, Nigeria’s foreign reserve hit peak growth at US$62.40 billion becoming the twenty-fourth largest reserves holder in the world. Algeria was the country with the highest reserves in Africa, according to a paper in the CBN Journal of Applied Statistics; Determinants of foreign reserves in Nigeria: An autoregressive distributed lag approach. Other important holders between 2006-2008 were Libya, Morocco, Egypt and South Africa.
Here is a tabular representation of the data on Nigeria’s foreign reserve from 1999 – 2007 by IndexMundi, a data portal gathering facts and statistics from multiple sources and turning them into easy to use visuals.
1999-2007 Foreign reserve:
Also, in 1999 the price of crude oil fluctuated continually. According to data compiled by Macrotrends, a research platform for long-term investments, crude oil cost in January 1999 US$20.17 and by September 1999 the reserve had risen to US$37.94.
CONCLUSION: The claim that President Obasanjo inherited US$3bn in foreign reserves is false.
The researcher produced this fact-check per the Dubawa 2020 Fellowship partnership with NewsWire NGR to facilitate the ethos of “truth” in journalism and enhance media literacy in the country.
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