March 11, 2019

Healthy buffer despite a decline in reserves

Gross official reserves decreased by US$860m in February to US$42.31bn. The principal drivers of movements in reserves are currently oil revenues and the trades of foreign portfolio investors (FPIs). The oil price has settled above US$60/b since the end of January with help from favourable geopolitics, and volumes have picked up due to a decline in sabotage. Inflows from FPIs have recovered a little, indeed very strongly on the fixed-income side in the past two weeks, and the CBN’s sales at the investors’ and exporters’ window (NAFEX) have fallen sharply.                                                                                                                  

  • Reserves at end-February covered more than 12 months’ merchandise imports, and seven months when we include services on the basis of the balance of payments (BoP) to September 2018. Although the cover has declined due to unusually high imports of goods and services in Q3, this remains a healthy buffer.
  • Some definitions are required for the sake of clarity, however. The Nigerian data are gross, cover just fx and exclude swap contracts.
  • The South African series in our chart is the international liquidity position. This includes gold, fx and SDR holdings at the IMF, and then makes an adjustment for the fx forward position and deposits arising from foreign debt issuance.
Gross official reserves (US$ bn)

Sources: CBN; South African Reserve Bank (SARB); Central Bank of Egypt (CBE); FBNQuest
Capital Research
  • As for the CBE’s data, net international and gross reserves are similar.
  • There are similarities in Egypt’s and Nigeria’s BOP. In both cases, inflows from remittances are sizeable, the deficit on trade is large and net investment income is negative. However, Egypt enjoys a large surplus on services, amounting to US$11.1bn in 2017/18 (July-June) thanks to healthy receipts from Suez Canal fees and tourism. In contrast, Nigeria reported a deficit of US$22.4bn in the 12 months to September.