Monday April 11,  2022 / 09:11 AM / by FBNQuest Research / Header Image Credit:  iStock 

Today's chart shows that Nigeria's gross official reserves declined by USD317m (-0.8%) m/m to USD39.5bn in March. The drop is the fifth in a row. As shown by our chart, the reserves have been depleting by roughly USD451m on average on a monthly basis since Nov '21. Although an expected boost to the buffer is due from Nigeria's USD1.25bn Eurobond issue in Mar '22, the gross reserves are calculated on a 30-day moving average basis. As such, we expect this to be properly reflected in the reserves in coming days. 

Total reserves at end-Mar covered 9.4 months' merchandise imports based on the balance of payments for the 12 months to Sep '21, and 7.2 months when we add services. We consider this a healthy buffer. For a more accurate picture, we must adjust this gross figure for the pipeline of delayed external payments. 

Although elevated crude oil prices, which are currently above USD100/barrel, should augur well for the reserves, accretion has been hampered by Nigeria's low crude oil output, which has been exacerbated by oil theft and pipeline vandalisation. 

Another factor is the NNPC's deduction of subsidy claims from source before making remittance to the federation account. 

According to OPEC's monthly oil report for March, Nigeria's crude oil output (excluding condensates) averaged around 1.4 million barrels per day (mbpd) in January and February '22, far below its OPEC production quota of c.1.73mbpd. 

The oil cartel recently raised Nigeria's production quota for May to 1.75mbpd. However, considering the difficulties with oil theft and evacuation, the quota is unlikely to be met.  

Nigeria's 2022 budget (ex-supplementary) envisages that a portion of the fiscal deficit will be funded by external borrowings of c.USD6.2bn. 

As such, we still see accretion to the reserves from two potential sources namely: Eurobond issuance despite their higher costs due to the withdrawal of accommodative monetary policies by advanced economies, and loans from multilateral sources. Having raised USD1.25bn already via Eurobonds, the budget still leaves a gap of close to USD5bn that can be raised from these sources. 

We estimate gross official reserves at roughly c.USD40bn by year-end, based on current monthly attrition and probable accretion from external loans.