Gross Official Reserves Moved Across the US$40bn Threshold, and Counting

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Wednesday, February 07, 2018/   08.55 AM / FBNQuest Research 

Gross official reserves increased by US$1.92bn in January to US$40.69bn. The rapid accumulation of US$12.69bn over 12 months is due to two sizeable Eurobond launches, a small diaspora bond issue and the recovery in oil export revenues (through the NNPC’s share of production). 

We have to add the CBN’s fx reforms in H1 2017 because the substantial autonomous inflows have reduced its need to supply fx to the various windows. We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks.   

The unorthodox fx policies did not impact upon the highly successful Eurobond roadshows. Indeed, in a receptive market for sovereign paper with yield attached, several governments with weaker credit stories than Nigeria’s managed to tap the international capital markets in 2017. 

The CBN will be pleased with the encouraging signals from the NAFEX window. Turnover (ie both sides of trades) from its launch in April through to 05 February totals US$32.9bn. The weekly average has settled well above US$1.0bn. 

Reserves at end-January covered 15.1 months’ merchandise imports, and 10.2 months when we add services. These calculations are based on the balance of payments for the 12 months through to September 2017. The debate should move on from whether Nigeria has an adequate external buffer. 

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It has been said that the FGN makes too much of this accumulation. We have no quarrel with such self-congratulation provided that we all acknowledge that conditions in the Eurobond market could become problematic for borrowers, that hot money could exit and that the oil price could tumble. (These are not our expectations, incidentally.) The reserves are “real”, however, having grown by a combination of good policy and good fortune.  

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