The current peculiarity of the Nigerian economy owning from negative sentiments and low risk tolerance of offshore portfolio players has caused foreign reserve to resume decline against an uptick experienced in gross reserve by US$950 million in December to US$43.12 billion after the latest sale of FGN Eurobond which raised US$2.86bn.
This was however referred to as a short boost to Nigeria foreign reserve.
According to data sourced from the Central Bank of Nigeria, Gross official reserves increased by US$874 million in January 2019 to US$43.04 billion from US$42.17 billion in November 2018.
However, this was a marginal decline by 0.18 percent from national gross reserve of US$43.12 billion in December 2018.
Analyst therefore fear higher downward pressure on the Nigerian foreign reserve with increasing political tension and risk attributed to election periods.
“Periods like this to a large extent could result to some decline in external reserves” Johnson Chukwu, CEO cowry asset management told BusinessDay.
According to a report by FbnQuest, “the CBN is now a regular seller of fx at the investors’ and exporters’ window (NAFEX) with offshore portfolio players exit from Nigeria, as from other emerging/frontier markets”.
“The apparent withdrawal on the FGN’s instructions of US$1.6bn from the excess crude account” the report added. However, current reserves cover about 15 months’ merchandise imports, and nine months when we include services on the basis of the balance of payments (BoP) to June 2018. This remains a more than adequate buffer.
Current levels in the foreign reserve of Nigeria are similar to international liquid positions in South Africa and Egypt according to data gathered from Central banks of respective countries.
South Africa has a foreign liquid position which includes gold and SDR positions at the IMF of US$7.7 billion combined along with fx and forward commitments, and then deducts swaps and deposits arising from foreign debt issuance.
“Compared to Nigeria, South Africa’s reserves have been remarkably stable and have enjoyed a modest boost in December due to a firmer US dollar gold price” FbnQuest noted.
Egypt on the other hand had its reserves declined by about US$2bn in December which also reflect the withdrawal of offshore investors.
