Fewer FPIs, fewer reserves

Gross official reserves declined by US$2.31bn in October to US$42.00bn. This fourth monthly decline in succession can be explained by changes in the sentiment of foreign portfolio investors (FPIs) in the wake of the headwinds driven by US monetary policy. Previously a consistent buyer, the CBN has therefore become a source of fx at the investors’ and exporters’ window (NAFEX). For the last eight weeks for which the data is available (through to 22 to 26 October), it has been the largest source of such inflows.

  • Reserves at end-October covered almost 16 months’ merchandise imports, and nine months when we include services on the basis of the balance of payments to June 2018. This remains healthy cover by any criteria.
  • We should address the million dollar, tabloid question: what if all FPIs exited?  This is a fanciful idea, given the yields on offer and the oil price. We estimate a fall to a little above US$25bn, the level of reserves in Q2 2016.
  • 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 shows the international liquidity position. This measure includes gold and SDR positions at the IMF of about US$7bn combined along with fx, and deducts swaps and deposits arising from foreign debt issuance. It could be usefully adopted by the CBN.
Official reserves (US$ 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. Egypt is an obvious parallel with Nigeria: both made fx reforms to attract FPIs and both have tapped the Eurobond market. Our chart shows stable reserves for Egypt and a decline for Nigeria although the latter can look forward to another Eurobond issue and support from the firmer oil price.



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