Culled—-Proshare

August 10, 2020

by FBNQuest Research                                                                  

CBN data show that Nigeria’s gross official reserves declined by US$320m in July to US$35.88bn. The FGN is in talks with the World Bank over a soft loan of US$1.5bn that would finance its response to Covid-19 and help to cover the 2020 budget deficit. These funds would flow directly into reserves like the US$3.4bn granted by the IMF in April within its Rapid Financing Instrument. Those talks continue although the Bank did approve on Friday a US$114m package for the purchase of medical equipment and tests by the federal and state governments. Conditionality is thought to be complicating the talks over the budget financing.  

Total reserves at end-July covered 7.0 months of merchandise imports and 4.3 months when we add imported services. These figures should be adjusted downwards, however, for the pipeline of delayed external payments, largely repatriation proceeds due to FPIs, that has accumulated since late March.

For Egypt and H2 2019, the comparable figures were 6.6 and 5.4 months. From a financial markets perspective, we note that Egypt is a far better parallel with Nigeria than South Africa and that it has a more robust balance of payments.

In the nine months to March 2020, Egypt posted: a current-account deficit of -US$7.4bn (-US$14.5bn in Nigeria); a net services surplus of US$8.4bn (deficit of -US$25.5bn); net workers’ remittances of US$21.5bn (US$17.3bn);  and net FDI of US$5.6bn (US$0.3bn).

Gross official reserves (US$ bn)

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

Of the three central banks in our chart, we defer to SARB’s international liquidity position. This shows gross reserves (consisting of gold, SDR holdings and fx reserves including foreign-currency deposits), from which are deducted the same deposits, proceeds of bond issuance, and forward transactions such as swaps. The position improved by US$2.38bn in July by virtue of the soaring gold price and an increase in the SARB’s forward position.