October 18, 2023/FBNQuest Research
We attribute the significant decline, in part, to substantial external debt service payments made during the month, driven by the volume of issuances within that period.
Total reserves as at end-Jul ’23 covered 6.8 months of merchandise imports on the basis of the balance of payments for the 12 months to Dec ‘22 and 5.3 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, which have been estimated within a wide range of USD3bn to USD10bn by various sources.
Last week, the CBN lifted restrictions on foreign exchange for 43 items which had been denied access to foreign exchange on the official fx window since 2015.
The bank cited the need to alleviate demand pressure from the importation of these items on the parallel market.
However, the market did not respond positively to the announcement. The naira has depreciated by 67bps to NGN1044.5/USD on the parallel market since the restrictions were lifted last week.
In our view, the CBN’s capacity to resolve the lingering challenges with fx availability is limited.
The solution lies in addressing the structural issues contributing to the fx supply deficit – which is mainly related to the need to boost the nation’s export productive capacity. This falls primarily within the purview of fiscal authorities.
