Reserves holding up very well

Gross official reserves increased by US$980m in August to US$31.8bn. Since the recent low at end-October there has been an accumulation of US$7.9bn. The more telling figure is the increase of US$1.5bn since end-March, when the CBN stepped up its fx interventions under its multiple currency practices (MCP). When we allow for the sharp fall in imports in the recession, the buffer is now comfortable. By way of warning, we should stress that the figures provided by the CBN are gross and mask the swap transactions it has entered into with banks.

The pick-up in oil production has been an obvious positive for accumulation. Officials are encouraging the view that it is back at, or close to the 2.0 mbpd level. Further, the FGN may well return to the Eurobond market this year. The heavily-oversubscribed Iraqi sovereign issue last month without US guarantees was a reminder of the strength of the market.

The CBN will also be boosted by the signals from the investors’ and exporters’ window (NAFEX). Turnover from its launch in late April through to 15 September totals US$11.2bn. If this market was to take off as a result, for example, of an offshore investor plunge into Nigeria’s local currency debt markets, we would be approaching the required critical mass and would have to revise our expectations of MCP.

Given this cushion of reserves and the fact that sectors such as manufacturing are benefiting from the interventions, we no longer think that the CBN will be revising its fx policy this year (such as by the unification of rates). We almost have an open mind as to whether it will make changes in 2018.

On the basis of the balance of payments for 2016, reserves at end-August provided 10.8 months’ merchandise import cover. When we add imports of services, the cover is still 8.1 months.

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