External Reserves Decline amidst FX Scarcity
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External Reserves Decline amidst FX Scarcity

Reflecting a strong drawdown than an accretion rate, Nigeria’s gross external reserves declined below $37 billion, according to data from the Central Bank of Nigeria (CBN) website.

Nigeria’s gross external reserves position declined despite a solid weekly gain in global oil prices at the time the country’s FX scarcity bites harder.

Last week, crude oil price recorded its biggest weekly gain thus far in 2023, up 9.2% to $86.06 per barrel litre, driven by Moscow’s announcement that it would cut daily output by 500,000bpd effective from March 2023, in retaliation to EU’s recent oil price cap and import ban policy.

According to the Nigerian Upstream Regulatory Commission (NUPRC), aggregate crude oil production (including condensates) increased by 5.7% month on month to 1.49 million barrels per day (mbpd) in January from 1.41mbpd in December 2022.

In its macroeconomic note, Cordros Capital said the improvement in production volume reflects the impact of the government’s recent efforts to curb crude oil theft and vandalism.

The breakdown provided showed that crude oil production increased in January from December record across the Forcados (+5.4%), Escravos (+5.3%), Bonga (+9.3%), and Agbami (+160.8%) oil terminals.

Analysts however said production volume remains significantly below the country’s OPEC+ production quota (1.83mbpd), likely reflecting the impact of other factors hindering higher crude oil production asides from oil thefts and vandalism.

The notable factors include an age-long infrastructure deficit and divestments by large International Oil Companies (IOCs), according to the note.

“Although we expect crude oil production to increase in 2023, we think it is unlikely to reach the pre-pandemic level of about 2.10mbpd) in the absence of incentivising investment in new production capacity and proper handover of divested IOC’s assets to indigenous companies”.

Cordros Capital forecast crude volume to print at 1.53 mbpd in 2023, a level lower than 1.69 mbpd estimated by the Federal Government of Nigeria. 

“..We expect the government’s oil revenue performance to remain underwhelming over the short term”, the investment firm said in a note.

Last week, Nigeria’s external reserves declined by $167.87 million to $36.82 billion – the lowest level since September 2021 when it settled at $36.78 billion.

Foreign portfolio investment inflow into the Nigerian economy has remained subdued to uncertainty over how long it takes to get money out of Nigeria was a big deterrent.

Last year, IMF stated in a report that Nigeria’s gross international reserves remain below comfortable levels. Gross foreign exchange (FX) reserves declined to $36.5 billion at the end of 2020, equivalent to 72 percent of the Assessment of Reserve Adequacy (ARA) metric including the oil buffer.

Following COVID pressures, Nigeria’s special drawing right (SDR) allocation of $3.35 billion and the Eurobond issuance of $4 billion boosted reserves to $41.3 billion at end of October.

Gross FX reserves are projected to decline from this level during the course of this year, partly owing to clearance of FX backlog owed to foreigners -estimated by the authorities at $1.7 billion as of end-October- and delivery of forward contracts.

In the absence of major policy adjustments, including greater clarity on exchange rate policies, foreign capital inflows are projected to remain subdued in the medium term resulting in limited accumulation of FX reserves, IMF said.

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