November 9, 2023/FBNQuest Research

Our chart below, taken from CBN data, shows that Nigeria’s gross official reserves increased by USD159m in Oct ’23 to USD33.4bn. The m/m accretion to the external reserves is the most significant since Jun ’22 when the external reserves increased by USD672m. Identifying the primary source responsible for the accretion to reserves is challenging because the CBN’s commentary is often delayed. Pending comments from the CBN, our guess is that the foreign reserves received modest fx inflows from traditional sources, including earnings from crude oil, and perhaps smaller amounts from non-oil exports.

Supporting our viewpoint is the fact that Nigeria’s daily production of crude oil and condensates has steadily increased from around 1.3 million barrels/day (mb/d) in Jul ’23 to almost 1.6mb/d as at Sep ’23.

Total reserves as at end-Oct ’23 covered 7.8 months of merchandise imports on the basis of the balance of payments for the 12 months to Dec ’22 and 5.8 months when we add services.

However, for a more accurate picture, we must adjust the gross reserve figure for the pipeline of delayed external payments and the encumbered portion of the reserves, estimated at well over USD10bn by various sources.

As seen in our chart below, both Egypt and South Africa experienced growth in their official reserves. Egypt’s reserves increased by USD130m to USD35.1bn, while South Africa saw a notable rise of USD530m in its international liquidity position toUSD55.5bn.

Last week, in an effort to tackle the backlog of fx, the CBN commenced the settlement of some of the outstanding FX forwards owed to different banks. Following the move, the Naira appreciated by almost 20% on the parallel market before it later retraced some of its gains.

Looking forward, the CBN’s commitment to clearing outstanding fx obligations will play a crucial role in determining the likely direction of the Naira.

However, we anticipate an even more pronounced rebound once the estimated USD10bn inflow enters the economy.