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Gross Official Reserves Declined by USD194m to USD39bn in August 2022

Sep 09, 2022   •   by   •   Source: FBNQuest   •   eye-icon 244 views

External reserves data from the CBN, show that Nigeria’s gross official reserves declined by -USD194m to USD39.0bn in August. The decline comes after two consecutive months of marginal increases. The CBN’s explanation of the sources of fx accretion and depletion is usually lagged. However, the depletion may partly be attributed to the CBN's release of USD265m during the month to clear some of the fx backlogs of foreign airlines operating in the country. With respect to the larger size of the release to airlines relative to the decline in reserves, we emphasize that the reserves data are provided on a 30-day moving average basis, which tends to smoothen out sharp inflows and outflow.

 

Total reserves as at end-August covered 9.1 months of merchandise imports on the basis of the balance of payments for the 12 months to March 2022, and 7.0 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, like most countries has seen pressure on its external balance position, partly due to geo-political developments in Europe, and low productivity of its oil sector.

 

As shown in our chart below, there are similarities in the movement of reserves for the three major African markets that we track. Year-to-date, both Egypt's and South Africa's reserves have experienced larger decreases than Nigeria's, which has shown a milder decline, with Egypt's being the worst of the three.

 

For Egypt in particular, the Russian-Ukraine conflict has created a sizable external funding gap due to the toll it has taken on fx inflow from its tourism sector and a marked rise in its import bill. We understand that the country is in talks with the IMF for a new loan to address the fx liquidity gap.

 

While the Nigerian Naira (officially) has shed only c.-3% ytd versus the US dollar, the South African Rand is down by c.-9% ytd. Once more, the Egyptian pound performed far worse than its peers, having fallen by c.-19% year to date.

 

The naira’s relative strength can be attributed to the CBN’s demand management strategies which have pushed ineligible fx users to the parallel market. Our channel checks show that the naira has experienced a greater ytd decline on the parallel market.

 

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