October 13, 2022/FBNQuest Research
Data from the central bank of Nigeria (CBN) shows that Nigeria’s gross official reserves declined for the second consecutive month by around -USD772m to USD38.2bn in September. The decrease is the most significant since May, when gross official reserves dropped by almost -USD1.1bn. As such, some explanation is required. The CBN’s data series on fx flows through the economy is lagged. As a result, it will be a few more months before we get a clear picture of what caused the substantial m/m decline in official reserves. However, contributing to the overall reduction were coupon payments estimated at USD145m on three of Nigeria’s sovereign Eurobonds – Sep ’28, Sep ’33, and Sep ‘51 issued last year.
We also assume that the sum comprised of other debt services costs such as interest payments on bilateral and multilateral loans, as well as possible increases in CBN interventions at its multiple windows.
Total reserves as at end-September covered 8.9 months of merchandise imports based on the balance of payments for the 12 months to March 2022, and 6.8 months when we add services. However, for a more accurate picture, we must adjust the gross reserve figure (and the import cover) for the pipeline of delayed external payments.
Nigeria is not the only country experiencing pressure on its reserves. Although Egypt’s foreign exchange reserves increased marginally by about USD56m to almost USD33.2bn in September, the increase was its first monthly accretion since April 2022.
The country is in talks with the IMF for a loan to address the fallout of an external funding gap largely due to the Russian-Ukraine conflict.
South Africa’s international liquidity position also declined by c.USD900m to USD52.2bn during the month, largely due to valuation adjustments following the appreciation of the US dollar and asset price movements.
Although Nigeria may be able to get some concessional loans from multilateral agencies to boost the reserves, these sources of accretion are constrained by size and come with stringent conditions.
