A Further Fall In Official Reserves


Tuesday, November 12, 2019   /09:30 AM  / By FBNQuest Research  / Header Image Credit: The Nerve Africa


Gross official reserves saw another sharp decline in October, of US$1.39bn to US$40.46bn. Over three months the fall has amounted to US$4.44bn. The principal driver has consistently been the exit of foreign portfolio investors (FPIs).

Naira-denominated debt including bills bought under the CBN's open market operations has a good story to share, based around the healthy returns and the (relatively) smooth operation of NAFEX. Yet some investors have exited nonetheless due to the chatter around the "R" (recession) word and the US-Chinese trade spat.

On an aggregate basis, net flows to EMs last week were positive for both bonds (US$1.6bn) and equities (US$650m). The numbers ytd are positive by US$60.3bn for bonds and negative for equities by -US$27.3bn. The data from reliable industry sources include local currency bonds. One driver of the improvement in sentiment has been the better mood music surrounding US-Chinese trade relations.

Nigeria's stated reserves still provided cover for 11.2 months of merchandise imports in October on the basis of the BoP for the 12 months to Q1 2019, and 6.3 months when we add services. For Egypt and its 2018/19 fiscal year (July-June), the comparable figures were 8.2 months and 6.9 months.

Its short-term BoP prospects look stronger (than Nigerias). In 2018/19 it posted a net services surplus (of US$13bn) and a net FDI inflow.


Performance of three SSA market indices (% chg ytd, local currency units)

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Sources: Nigerian Stock Exchange; Nairobi Stock Exchange; Bloomberg; FBNQuest Research


Measures for reserves differ. The SARB has the most transparent definition of the international liquidity position to include forward transactions as well as its substantial holdings of gold. South African reserves rose in October on the back of a US$720m unwinding of the forward position. The Nigerian data are gross, cover just fx and exclude swap contracts.


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