Some comfort beyond the US$30bn reserves tipping point


Wednesday, January 06, 2015 08:58 AM / FBNQuest Research


Data from the CBN show that official reserves declined by US$850m in December on a 30-day moving average basis to US$29.1bn. We have heard that the US$30bn threshold was somehow a “tipping point” and we know that the CBN’s share of the reserves is 85%.


That said, there is no sign of a shift in exchange-rate policy and so we suggest why the monetary authorities feel more comfortable than we might imagine. In 2015 reserves decreased by just US$5.4bn although the average crude oil price fell by one third over the year. The CBN has made great use of administrative measures and moral suasion to constrain fx demand but has also benefited from Nigeria’s strong external balance sheet.


In November Moody’s affirmed its Ba3 rating, equivalent to BB- with Fitch, for Nigeria’s sovereign long-term foreign currency obligations largely for this reason. Public external debt amounted to US$10.3bn in June or 2.1% of GDP. Other than the three US$500m sovereign Eurobonds in issue, it is concessional debt. The FGN’s 2016 budget proposals project just N54bn (US$270m) for external debt service.  


Nor is Nigeria drowning in private external debt. The banks have raised US$3.7bn from the sale of Eurobonds, the first series of which mature in May 2016. To this small figure we should add intra-company indebtedness within multinational companies and Nigerian banks’ external credit lines with overseas counterparties. The contrast with Russia or even Angola is stark.

This perspective will not comfort importers running low on inputs but it does help to explain the CBN’s thinking.


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4.      Unexplained rise in the FAAC distribution – Aug 05, 2015

5.      Reports of a recovery in reserves – Jul 09, 2015

6.      Another decline in reserves – Jul 07, 2015

7.      Welcome stability in reserves – Jun 04, 2015

8.     Further decline in FAAC distributions – May 19, 2015

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