FX Inflows into Nigeria Rise in August – Report
Foreign exchange (FX) inflow into Nigeria increased due to improved inflow through the Central Bank (CBN), economic reports for August show. Despite a healthy inflow, exchange rate tracking shows that naira records mixed outings.
While it held steady at Nigeria’s autonomous foreign exchange fixing (NAFEX), the local currency fell against the dollar at the parallel market – near N580 to a dollar. Recall that in July, the apex bank stopped FX/dollar to Bureau de Change in what some analysts called knee jerk approach.
Consequently, the parallel market reacted negatively as the exchange rate worsen before it started to moderate. According to the CBN, aggregate FX inflow into the economy increased by 48.2 per cent to US$9.85 billion in August, relative to the US$6.98 billion in July.
But the report noted that foreign capital inflow moderated in the month due to weakening risk sentiments that followed the COVID-19 resurgence.
New capital imported into the domestic economy decreased by 29.0 per cent to US$0.44 billion, compared with the US$0.62 billion recorded in July 2021. The increase in FX inflow reflected higher inflow through the CBN from additional special drawing rights (SDR) allocation of US$3.34 billion from the International Monetary Fund (IMF).
CBN said a 20.7 per cent rise in autonomous inflow also contributed to the increase in aggregate inflow in August, driven, majorly, by increased invisible purchases. On the downside, a higher imports bill drove the dollar out from Nigeria.
The report said foreign exchange outflow through the economy increased by 3.3 per cent to U$3.54 billion in August, due, mainly, to the 8.8 per cent rise in the outflow through the Bank, on account of increased interbank sales and Swap transactions.
It was however noted that capital outflow remained subdued during the review period, due to lower repatriation of capital and dividends. According to CBN, capital outflow declined by 26.5 per cent to US$0.44 billion in August, compared with US$0.60 billion in the earlier month.
The apex bank initiated capital control measures to stem naira from free-falling amidst dollar shortage while demand for foreign currencies rise. CBN report hinted that autonomous outflow dropped by 15.6 per cent to US$0.65 billion in August, compared with US$0.77 billion in the preceding month, due to a decline in both visible and invisible imports.
Consequently, the economy recorded a net FX inflow of US$6.31 billion in August, compared with US$3.55 billion in the preceding month. A higher net inflow of US$2.54 billion was recorded through the Bank, compared with US$0.66 billion in July.
CBN said it continued to intervene in the foreign exchange market to ensure systemic stability and adequate liquidity. Total foreign exchange sales to authorised dealers by the Bank was US$1.65 billion in August, representing a decrease of 19.3 per cent, relative to US$2.05 billion in July.
A breakdown shows that foreign exchange sales to interbank, Swap transactions and SME interventions rose by 63.5 per cent, 72.3 per cent, and 42.5 per cent to US$0.28 billion, US$0.46 billion, and US$0.17 billion, respectively.
CBN interventions at the Secondary Market Intervention Sales (SMIS) and Investors’ and Exporters’ (I&E) fell by 33.8 per cent and 14.7 per cent to US$0.52 billion and US$0.23 billion, respectively, compared with the levels in the previous month.
In the review period, the CBN directed all commercial banks to publish the names and Bank Verification Number (BVN) of all defaulting customers that presented fake travel documents to purchase BTA/PTA to curb unwholesome practices.
The naira recorded marginal depreciation in all the market segments, reflecting the effects of the previous month’s policy on the stoppage of foreign exchange sales to BDCs and the perceived supply shortages.
Foreign Exchange Turnover at the I&E Window
Available data shows that average foreign exchange turnover at the investors and exporters’ window was US$126.18 million in August 2021 indicating a decline of 24.1 per cent, compared with US$166.16 million in July.
Capital outflow remained subdued during the review period, due to lower repatriation of capital and dividends. Capital outflow declined by 26.5 per cent to US$0.44 billion in August, compared with US$0.60 billion in the earlier month.
On capital outflow, the report said disaggregation revealed that the outflow of capital (mainly from banking, financing, and trading sectors) was US$0.29 billion, constituting 65.8 per cent of the total.
The outflow of loans stood at US$0.14 billion or 30.9 per cent of the total. Dividends worth US$0.01 billion accounted for 1.4 per cent, while other outflows accounted for 1.9 per cent of the total.
Foreign capital inflow moderated in August 2021 due to weakening risk sentiments that followed the COVID-19 resurgence. New capital imported into the domestic economy decreased by 29.0 per cent to US$0.44 billion, compared with the US$0.62 billion recorded in July.
A disaggregation of capital imported by type of investment indicated that foreign portfolio investment inflow (mainly money market instruments), at US$0.24 billion, accounted for 53.8 per cent of the total.
The inflow of other investments, mainly loans, was US$0.16 billion, constituting 36.9 per cent of the total. Foreign direct investment, at US$0.04 billion, constituted the balance of 9.3 per cent. #FX Inflows into Nigeria Rise in August – Report
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