October 09, 2020 / 09:07 AM / By FBNQuest Research / Header Image
CBN data show that Nigeria's gross official reserves declined by US$130m in September to US$35.74bn. The broad flight of foreign portfolio investors (FPIs) from EM was painful for both Nigeria and Egypt in March and April but both were able to rebuild gross reserves with emergency funding from the IMF to combat Covid-19. Additionally, Egypt has been successful in securing the return of many FPIs. Nigeria's focus has been to secure budget deficit financing from the World Bank and African Development Bank. Disbursements would again flow directly into reserves. Negotiations have been complicated by conditionality.
Total reserves at end-September covered 7.6 months of merchandise imports per the balance of payments (BoP) for the 12 months to June, and 4.8 months when we add imported services. The cover has improved with the inclusion of the BoP for Q2 2020 because of the compression of imports of goods and particularly services due to selective lockdown and the closure of airports to international traffic.
These figures should be adjusted downwards, however, for the pipeline of delayed external payments that has accumulated since late March. The CBN restarted supplying the I&E window with fx on a small scale in late August. The IMF has put the pipeline at between US$2bn and US$3bn.
The CBN's data series does not show the value of any swap arrangements within gross fx holdings. However, we recall that Fitch recently estimated swap obligations at 15% of the total (ie about US$5.4bn).
Gross official reserves (US$ bn)
Sources: CBN; South African Reserve Bank (SARB); Central Bank of Egypt (CBE); FBNQuest Capital Research
The comparable figure for gross fx for South Africa at end-September was US$44.3bn including foreign currency deposits banked, to which we add gold and SDR holdings to reach gross reserves of US$54.4bn. We then deduct the same deposits and adjust the figure for forward transactions such as swaps. This gives us the international liquidity position of US$50.7bn in the chart.