External reserves reverse months of decline
By Jeph Ajobaju, Chief Copy Editor
External reserves, also called foreign reserves, have gained $923 million since early June to reach $39.3 billion in mid July, reversing months of decline.
They had reduced steadily to $38.421 billion on 6 June 2022 from $40.52 billion in December 2021, a loss of N2.1 billion or 5.1 per cent.
Analysts at Cowry Asset Management attributed the accretion to the rally in the price of crude oil and proceeds from the listed $1.25 billion FGN Eurobond issued in March 2022.
They also cited measures introduced by the Central Bank of Nigeria (CBN) to boost dollar inflow as factors that will sustain increase in reserves in the long term.
“Nigeria’s gross external reserves is on positive accretion back to $40 billion after hitting more than six months low to around $38 billion since the start of the year.
“Currently, the positive rally witnessed in the crude oil market since the start of 2022 is now beginning to permeate the economy to spur bullishness in external reserves,” the analysts said.
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Impact of FGN Eurobond proceeds
“In a similar vein, we can attribute the positive accretion of the external reserves to the recent announcement by the Debt Management Office (DMO) that proceeds from its recently listed $1.25 billion FGN Eurobond issued in March 2022 on the NGX and FMDQ Exchanges respectively, were used to finance capital projects and contributed to the increase in Nigeria’s external reserves,” they analysts said, per Vanguard.
“We believe the judicious execution of the CBN’s ‘RT200 FX Scheme’ and the continued incentivisation of international money transfer operators (IMTOs) through the ‘Naira4Dollar Scheme’ policy on FX repatriation will in the long run help attract inflows of foreign exchange into the economy.”
External reserves to dip $1.7b in mandatory repatriation
External reserves are expected to decline by $1.7 billion as the CBN clears foreign exchange (forex) backlog payment to foreigners and forex forward contracts by October 2022.
External reserves are bleeding partly due to CBN intervention in the forex market to stabilise naira exchange rate.
The pending payment is contained in a World Bank report titled, “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual”.
“Boosted by higher oil exports, International Monetary Fund [IMF’s] Special Drawing Rights allocation in August 2021, and a Eurobond issuance in September 2021, gross official reserves rose to US$41.3 billion (7.4 months of imports) at the end of 2021; offering an opportunity for exchange rate adjustment.
“Nigeria issued additional Eurobonds for US$1.25 billion in March 2022. However, gross FX reserves are projected to decline during 2022, as the CBN is expected to clear the FX backlog to foreigners (estimated at US$1.7 billion as of end-October) and FX forward contracts,” the World Bank said.
It projects that Nigeria would experience net portfolio outflows in 2022 due to the hawkish monetary policy in developed countries.