Gross Official Reserves Declined by USD1.20bn to USD35.10bn in February 2021


Tuesday, March 09, 2021  / 5:34AM / FBNQuest Research / Header Image Credit: cnbc

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We see from CBN data that Nigeria's gross official reserves declined by USD1.20bn to USD35.10bn in February. A good part of the decline is the result of the FGN's decision to repay (rather than refinance) the USD500m Eurobond that matured in late January. For the sake of accuracy, we should adjust this figure for reserves downwards to allow for the pipeline of delayed external payments, which the IMF estimated late last year at up to USD3bn.


We do not view the current level of reserves as a cause for alarm, and note three likely areas where the CBN could build up its buffers: the firmness of the oil price (to the extent that the NNPC benefits), new multilateral loans (preferably condition-lite) and a return by the FGN to the Eurobond market (now that domestic borrowing costs are now again higher than external).


Total reserves at end-February covered 7.3 months' imports of goods per the balance of payments for the 12 months through to September. The cover falls to 5.1 months when we add imported services. This latter figure has actually improved during life with COVID-19 because Nigerians have made very little use of the fx allowances for health, education and business related expenses, which together dominate imports of services (Good Morning Nigeria, 01 March 2021).


The CBN series is gross and gives no detail on swap arrangements. The CBE shows gross and net reserves as similar. The fullest definition is the SARB's international liquidity position, of which gold reserves still represent close to 14%. It is also adjusted to reflect the fx forward position.


There is currently a debate within G7 and beyond about an increase of quotas of special drawing rights (SDRs) within the IMF. Quotas are included in reserves and determine the limit on members' borrowing from the Fund. Nigeria's is SDR2.45bn (USD3.50bn), and the FGN  borrowed the maximum permitted 100% of quota from the Fund in April '20 within its rapid financing instrument to tackle external shocks (the virus in this case). The focus of the debate is how to raise quotas for those most in need rather than for all members.


This year has started well for the EM universe from the perspective of net FPI inflows. Our sister company, FBN (UK), tells us that they have amounted ytd to USD22.8bn for bonds and USD53.8bn for equities. Flows into Nigeria would surely have been negligible, given the payments pipeline (see above). 


Official reserves (USD bn)

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Sources: CBN; South African Reserve Bank (SARB); Central Bank of Egypt (CBE); FBNQuest Capital Research











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