Nigeria’s Foreign Reserves See Marked Increase Amidst Borrowings
After a persistent decline, Nigeria’s gross foreign currency reserves see a marked increase to $38.18 billion as scarce dollar inflow eased due to positive demand that keeps the global prices of crude oil stable for a large part of the year. Also, the improved dollar inflow was supported by $4 billion from the Eurobond raised by the Debt Management Office.
Though crude oil supply has been under pressure following technical issues and Shell force majeure, Nigeria’s oil minister said the country has made move to increase output and deliver on the Organisation of the Petroleum Exporting Countries (OPEC) quota.
Nigeria’s external reserves could close higher at $40 billion in 2021 due to expected inflow from oil and government borrowings, though the downside remains the foreign investors’ backlog of foreign currencies meant to be repatriated, sources told MarketForces Africa.
Despite being growth-starved, Africa’s largest economy recorded a flattering gross domestic product growth in the second half of 2021 after a tepid outturn in the first quarter. Foreign investors have been on the sideline, seeking a safe haven as the local investment environment has been largely unimpressive, worsen by the Central Bank capital control measure.
Due to scarcity of dollars amidst rising demand, the apex bank had introduced measures to ensure Naira value would be a safeguard. Despite this, the market movement has forced three times local currency devaluation since last year.
Naira worsen to N580 at the black market as of the end of the third quarter, though currencies traders hinted that it trades at N575 to a dollar on Monday.
Experts said the way out for naira is for Nigeria to generate more dollars and boost supply to wade off speculators. After the apex bank ended the weekly dollar supply to bureau de change in July, there has been massive unofficial devaluation in the parallel market.
Most analysts believe that parallel market rates is better accepted as the true value of the local currency if forces of demand and supply were to determine its exchange rate.
Now, foreign exchange spreads between the official exchange rate and the black market quote have widened by more than N150 to a dollar, a condition that appears to be fueling arbitrage activities among opportunities seekers.
Naira purchasing power has been watered down significantly since 2015 with the Godwin Emefiele-led Central Bank. As of May 2015 when Mr. Muhammadu Buhari became elected President, CBN official rate was N197 to a dollar.
Six years after, the local currency has tumbled multiple times amidst low dollar earnings as investors keep off from the domestic economy amidst bumps and troughs.
Imports bills continue to rise despite banned placed on items from overseas, but non-oil commodities export has provided rather weak support that continues to keep Nigeria’s current account balance negative.
Unfortunately, Nigeria is earning less from the non-oil sector and pressures on the crude oil market could send further jittery, especially if Iran crude supply entered the oil market. At the time when oil prices peaked, Nigeria supply hit the bottom, resulting in fiscal slippage.
Nigeria depends largely on receipt from oil export as the country struggles to boost revenue from other sources, but has underperformed its own expectations year on year.
Driven in part by foreign currency borrowings, Nigeria’s external reserves sustained a weekly accretion, as the gross reserve position closed higher by US$1.20 billion to $38 billion.
Meanwhile, the naira depreciated by 0.2% last week to N414.30 per dollar at the I&E window (IEW), according to data from FMDQ Exchange but appreciated by 0.3% to NGN573.00 at the parallel market.
At the IEW, total turnover decreased by 39.8% week to date to US$512.81 million, Cordros Capital analysts said trades were consummated within the N404.00 – 448.30 band.
It was also noted that in the forwards market, the rate was flat, traded at N415.60 a dollar for the 1-month contract, while it depreciated by 0.2% to N421.01 for a 3-month contract, down 0,3% to N429.44 for 6-month, depreciated 0.4% to N445.68 for 1-year contracts.
Analysts at Cordros Capital expect improved liquidity in the IEW over the medium term, given our expectation of increased oil receipts in line with the rise in crude oil prices and inflows from foreign currency borrowings.
The expectation was also anchored on the International Monetary Fund special drawing right.
Last week, the CBN injected $210 million into the foreign exchange market. A total sum of $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.
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In the new week, analysts at Cowry Asset are expecting Naira to stabilise against the greenback as crude oil prices remain high at the international crude oil market, noting that Bonny light crude, Nigeria’s sweet crude trades above $81 per barrel. #Nigeria’s Foreign Reserves See Marked Increase Amidst Borrowings
