March saw the rise of official reserves above US$30bn for the first time since November 2015, closing the month at US$30.3bn. It was, in sporting parlance, a match of two distinct halves, with steady accumulation in the first and marginal depletion in the second. The threshold of US$30bn makes a good headline and the authorities will have been pleased to have passed it. However, it has no other significance. In our view, accumulation makes the CBN less likely to adopt the exchange-rate reforms advocated by most offshore investors and the IMF.
The gentle depletion in the second half reflects the pick-up in fx sales by the CBN to the banks both for the retail segment for invisibles, and for business in spot and forward transactions. Such sales on Monday alone amounted to US$240m according to the CBN.
Between end-October and mid-March, reserves increased by about US$6.8bn. A disbursement of US$600m by the African Development Bank in November and US$1.0bn in Eurobond sales in February were contributory factors.
The official explanation has centred on the rise in crude production as result of the improvement to security in the Niger Delta. If we optimistically assume an increase of 400,000 b/d for the four and a half months through to mid-March, the state’s share that would accrue at the CBN could explain another US$1.3bn. For the still large balance of the accumulation, the best we can offer is a combination of tighter fx management, recoveries and swap transactions.
Sources: CBN; FBNQuest Research
Nigeria’s import cover at the end of March has strengthened to 9.5 months for goods and 7.1 months once we include services, based upon the balance of payments for the 12 months through to September 2016.