FX Outflows Still Below Pre-Pandemic Levels


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

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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)

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Sources: CBN; FBNQuest Capital Research

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