Culled—Proshare

April 9, 2020

By FBNQuest Research                                                                                   

Gross official reserves declined by US$1.14bn in March to US$35.16bn. This was the tenth successive monthly decline. The cumulative fall of US$9.96bn is largely due to the exit of foreign portfolio investors (FPIs). The CBN has sought to keep these players invested in Nigeria with returns close to 15% for longer tenor bills within its open market operations. The exit of this short-term capital has continued, however, as investors have taken fright of the global market headwinds, not least the crashing oil price and its well-documented consequences for Nigeria.                                                                                                           

Total reserves at end-March covered 6.8 months of merchandise imports on the basis of the balance of payments (BoP) for the 12 months to December, and 4.2 months when we add imported services. (The cover has deteriorated with the release of the BoP for Q4 because of the pick-up in merchandise imports and the record outflow for services debits.) For Egypt and its 2018/19 fiscal year (July-June), the comparable figures were 8.2 and 5.9 months.

Egyptian reserves, having been stable for one year (see chart), fell by as much as US$5.4bn in March, prompting a rare note of explanation from the central bank. Noting the widespread retreat from EMs, the CBE observed that Egypt had not been spared. It attributed the decline to use of its own “repatriation mechanism” for exiting FPIs, strategic imports and external debt service. Our reading is that the first was the largest element of the depletion of reserves.

Gross official reserves (US$ bn)

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

Anecdotal evidence tells us that the CBN is not currently making use of its own mechanism for FPIs to repatriate their exit proceeds.