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. 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.