External reserves may shore up from over $100 pb
By Jeph Ajobaju, Chief Copy Editor
Nigeria’s external reserves may increase to $43 billion in 2022, up from $40.5 billion in 2021, bolstered by $3 billion expected oil earnings from a bullish market where the price of the liquid gold now hovers around $110 per barrel (pb).
Fitch Ratings made the projection in its latest report which keeps Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a ‘Stable Outlook’, as it did a year ago.
A ‘B’ rating is in the non-investment-grade category compared with investment-grade category of ‘BBB’ to ‘AAA’. However, a ‘B’ could be a stable outlook, being rated above ‘CCC’ to ‘D’ (default).
Fitch reiterated that Nigeria has a low World Bank Governance Indicator (WBGI) ranking at 16.4, reflecting weak institutional capacity, uneven application of the rule of law, and high level corruption.
External reserves dropped to $39.86 billion in February, a 0.44 per cent decline against $40.04 billion in January.
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Forex sales, OPEC quota
Central Bank of Nigeria (CBN) data for Q3 2021 shows it supplied $8.97 billion to the foreign exchange (FX or forex) market through I&E, SME, and invisible.
It also supplied $1.42 billion through interbank and $2.77 billion through bureau de change (BDC) operators between January and June 2021 before it stopped FX sales to them.
The Organisation of Petroleum Exporting Countries (OPEC+) increased Nigeria’s production quota to 1.72 million bpd for March 2022, up from 1.7 million bpd in February and 1.68 million bpd January.
But Nigeria has not been able to meet the targets, which undermines its ability to benefit from surging oil prices.
Fitch optimistic
“Nigeria’s gross international reserves have been bolstered by higher oil export receipts, which will continue in 2022. We forecast reserves to increase to USD43 billion in 2022, up from USD40.5 billion at end-2021,” Fitch insisted, nonetheless.
Oil exports and remittance inflows combined to help restore the current account (CA) into balance in 2021, following a deficit of 4.2 per cent of GDP in 2020, Fitch added, per Nairametrics reporting.
“Our baseline assumption is for the CA balance to remain broadly unchanged in 2022, but sustained higher oil prices at their present level of USD112 per barrel could widen the 2022 current account surplus to 4 per cent of GDP, with upside to Nigeria’s international reserves.”
“In January 2022, the government reversed a plan to phase out the implicit fuel subsidies that support price controls on petroleum.
“This has necessitated an adjusted federal government budget for 2022 with a deficit target that is 0.6 per cent of GDP wider than the original target, due to the subsidies (with an additional equal hit to the other levels of government).”
“Higher oil prices would also boost the subsidy cost, denting the benefit of higher global oil prices to the budget. We forecast the 2022 general government fiscal deficit to remain broadly unchanged from 4.1 per cent of GDP in 2021.
“However, we estimate that an USD10 per barrel increase would narrow the fiscal deficit by 0.5 per cent of GDP.”
