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Reserves Heading Towards US$40bn

Gross official reserves increased by US$1.12bn in November to US$34.95bn. Accumulation has averaged US$850m over the past 12 months. We might have been sceptical at the time yet can say with hindsight that the CBN’s launch of multiple currency practices (MCP) in late March has seen an increase in reserves of US$4.65bn.

It has transformed fx availability from its own resources and at the same time attracted inflows on a scale to allow accumulation. We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks.

The inflows are not all autonomous portfolio monies. The FGN’s Eurobond sales are an obvious exception. There has also been the boost to the NNPC’s oil exports from the firmer crude price and the rise in production. The corporation’s own data has average output increasing from 1.69 mbpd in Q1 2017 to 1.87 mbpd in Q2 and 2.03 mbpd in Q3.

The CBN will be boosted by the positive signals from NAFEX. Turnover (ie both sides of trades) from its launch in late April through to 04 December totals US$22.7bn. It has averaged US$1.0bn on a weekly basis since mid-September, and has currently settled on a plateau.

Reserves at end-November covered 13.4 months’ merchandise imports, and 9.3 months when we add imports of services. The calculations are based on the balance of payments for the 12 months through to June this year, and so reflect the soft import demand from which Nigeria is slowly emerging.

 

Gross reserves are heading for US$40bn, which was last achieved in February 2014. We see substantial accumulation this month because the proceeds of the US$3.0bn Eurobond sales were banked last week and the CBN supplies the data on a 30-day moving average basis. Additionally, the FGN has the go-ahead to externalize longer tenor NTBs within a ceiling of US$2.5bn.

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