FX Outflows Still Below Pre-Pandemic Levels

Proshare

Tuesday, July 06, 2021 / 08:39 AM / By FBNQuest Research / Header Image Credit: Global Financial Digest 


Proshare Nigeria Pvt. Ltd.


According to the CBN's latest Quarterly Statistical Bulletin for Q4 '20, total fx inflows into the Nigerian economy declined by -6.4% q/q (-42% y/y) to USD24.8bn. Although aggregate inflows have increased since they bottomed out to a 3-year low at the height of the pandemic, they have not recovered to pre-pandemic levels.

 

Fx inflows through the CBN increased 17.1% q/q to USD8.2bn (or 33% of total inflows), thanks to a 48% q/q rise in non-oil receipts to USD6.8bn. A USD2.0bn category titled "others including FGN loans" underpinned the increase in non-oil receipts. On a net basis, the CBN's swap arrangements grew 117% q/q to USD792m.

 

In contrast, oil receipts fell 43.7% q/q to USD1.3bn due to i) Nigeria's adherence to its OPEC oil production quota, which resulted in a decline of 0.1 million barrels per day and, ii) a decrease in NNPC's share of oil and gas exports.

 

Autonomous sources (other than the CBN) contributed c.USD16.6bn in forex inflows, or 67% of overall inflows. It was supported by a 10% increase in OTC purchases (invisible transactions), which included capital imports, home remittances, and other OTC purchases which we reckon are mostly linked to bonds.

 

Notably within invisible transactions, capital imports and home remittances shrunk by 25% and 52% respectively. The drop in capital imports can be attributed to FPIs' waning appetite after a worsening of fx liquidity, induced by a sell-off in oil prices as the pandemic worsened. Remittances also suffered a blow from the weak economic growth and employment levels in migrant-hosting countries, and the depreciation of the currencies of remittance-source countries against the US dollars amongst other factors.

 

Fx outflows through the economy increased by 24.1% q/q to USD9.2bn. About 94% of the net outflows were routed through the CBN. The strong increase in forex outflows reflects a rise in CBN fx interventions at multiple intervention windows, notably the restart of fx sales to bureaux de change operators and at the investors and exporters (I&E) window in August '20 after a five-month hiatus. Despite the increase in outflows during the quarter, fx outflows remain below pre-pandemic levels, due largely to the CBN's import compression strategies..

 

Our conversations with FPIs and domestic investors indicate that greater fx liberalisation (including further adjustments to the fx rate) and the loosening of fx controls such as the CBN's 42-item fx restriction list are prerequisites to open the tap of portfolio flows.

 

FX flows through the economy (USD bn)

Proshare Nigeria Pvt. Ltd.

Sources: CBN; FBNQuest Capital Research


Proshare Nigeria Pvt. Ltd.


Related News

  1. Continuing Underperformance on Remittances in Q4 2020
  2. FMDQ Foreign Exchange (FX) Market Analysis Report for Week-Ended July 2, 2021
  3. Foreign Exchange (FX) Market Analysis for Week-Ended June 25, 2021
  4. FX Reserve Hits 13-month Low Despite the Significant Rebound in Oil Prices
  5. Telecoms: FX Scarcity Continues to Bite Hard
  6. Foreign Exchange (FX) Market Analysis for Week-Ended June 18, 2021
  7. Naira Weakens to Four-Year Low as Nigeria's Dollar Push Fails
  8. Forex: Everything You Need to Know
  9. Foreign Exchange (FX) Market Analysis for Week Ended June 11, 2021
  10. Gross Official Reserves Declined by US$650m to US$34.23bn in May 2021

 

Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP