Monday, February 10, 2020 /08:53 AM / By FBNQuest Research / Header Image Credit: Dissolve.com
Gross official reserves amounted to US$38.01bn at end-January, a fall of US$590m on the month. This was the eighth successive monthly decline, albeit the smallest since July. The principal reason for the trend decline has been the exit of foreign portfolio investors (FPIs), which prompts the CBN to sell fx from its reserves. The CBN is keen to discourage such exits and to underpin its foreign-exchange arrangements, limiting access, for example, to its bills issued within its open market operations, with returns close to 15% for longer tenors, to FPIs and the domestic banks.
A firmer crude oil price would give direct support to reserves. Since the start of the year, however, the price has been hit by the said impact of coronavirus on demand. It has not helped that Russia called for time to reflect on the proposal of OPEC+ last week of additional quota restraint of 600,000 b/d.
Total reserves at end-January covered 8.9 months of merchandise imports on the basis of the balance of payments (BoP) for the 12 months to September, and 5.1 months when we add imported services. For Egypt and its 2018/19 fiscal year (July-June), the comparable figures were 8.2 and 5.9 months. At these levels, the cushion is more than adequate for both countries.
Its trade balance is better but in most respects Nigeria's BoP is weaker than Egypt's. In Q3 2019 it posted non-oil exports of US$1.3bn (vs US$4.7bn for the same period); a net services deficit of US$8.4bn (vs a surplus of US$4.0bn), and net foreign direct investment of just US$100m (vs US$2.4bn.) Workers' remittances are comparable (US$6.0bn vs US$6.7bn).
Gross official reserves (US$ bn)
Sources: CBN; South African Reserve Bank (SARB); Central Bank of Egypt (CBE); FBNQuest Capital Research
The Nigerian measure of reserves is gross, covers just fx and excludes the CBN's swap transactions. Eurobond proceeds flow directly into reserves. Of the three countries in the chart, South Africa has the fullest definition.