Modest Rebound in FX Utilisation in Q3 2021

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Friday, January 21, 2022  / 09:04 AM / by FBNQuest Research / Header Image Credit: Business West 


Data drawn from the CBN's Quarterly Statistical Bulletin (QSB) shows that aggregate sectoral utilisation of foreign exchange (fx) increased by 26% q/q (and 65% y/y) to USD6.4bn in Q3 '21 from USD5.1bn in Q2. Similar to the prior quarter, goods accounted for around 57% of fx utilised in Q3, in continuation of a trend that has emerged since the outbreak of the pandemic. This contrasts with the pre-pandemic prevalence of invisibles in fx utilisation. To put things in perspective, between Q2 '18 and Q1 '20, the percentage of invisibles in total fx utilised averaged 66%. The dwindling share of invisibles can be traced mostly to the sharp decline in fx utilisation by the financial services sector. 


Moving back to Q3 '21, we see that forex utilisation for the industrial sector, the largest segment for fx utilisation within visible trade (goods) increased by 36% q/q and 46% y/y to c.USD1.5bn.


The recovery in fx used on manufactured products, which climbed by c.21% q/q and 86% y/y, is indicative of the gradual come-back of the country's healthy import demand.


Within the invisible segment, forex consumption by the financial services sector climbed by 14% q/q, accounting for c.77% (or USD2.1 billion) of total fx usage by invisibles in Q3. We think that the sector's fx consumption is tied to products like professional services, such as training, and information technology, among other things.


Overall, the rise in total fx utilisation by the various sectors can be attributed to the fx market's somewhat better liquidity situation during the period.


The central bank's official reserve was boosted significantly by the IMF's USD3.4bn SDR allocation and USD4bn in Eurobond sales in August and September of 2021.


Based on the CBN's data, we see that excluding sales to Bureau de Change (BDC) operators, the bank's supply of fx through its various windows increased to USD4.9bn in Q3 from USD4.6bn the prior quarter.


We relate the declining share of invisibles to balance of payments data which show that Nigerians have not started properly utilising their allowances for travel, health, education and other related purposes. We expect invisibles to pick-up once the fx situation fully stabilises. 


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