April brought the sixth successive monthly rise in official reserves, to US$31.0bn. The increase since end-October now amounts to US$7.0bn and restores the total to a level last seen in August 2015. Among the reasons for the welcome recovery, we can point to a disbursement of US$600m by the African Development Bank in November and more recent Eurobond sales of US$1.5bn. There has also been a significant recovery in oil production over the period. With less certainty we can speculate about improved fx management and possible swap transactions.
The positive surprise has been that the upward trend in reserves has continued, albeit more slowly, since the CBN stepped up its fx interventions (sales) in earnest at the beginning of March. The steady accumulation makes it less, not more, likely to adopt the fx reforms sought by the market.
There is no sign that the CBN plans to slow its sales, which for wholesale transactions alone are now close to US$3bn: rather, it launched its latest window (for investors and exporters) only last month.
The macroeconomic damage from the latest period of oil price weakness, which is now approaching three years, could have been manageable if a fiscal buffer against external shocks had been functioning.
Legislation passed in 2011 created such a buffer, Nigeria’s own ring-fenced sovereign wealth fund, but the opposition of state governors has prevented its effective operation. The accumulation from 2011 through to the start of the oil price slide in August 2014 would have been substantial.
Sources: CBN; FBNQuest Research
Nigeria’s import cover at the end of April has strengthened to close to ten months for merchandise goods.
