Foreign reserves down by $4.44bn in 3 months- FBNQuest research


FBNQuest Research has said the nation’s foreign reserves depreciated by $4.44 billion in the last three months driven by exit of foreign portfolio investors (FPIs).

The company noted that the gross official reserves saw another sharp decline in October, of $1.39billion to $40.46billion from $41.85 billion it closed in September.

Our correspondent can report that the foreign exchange reserves in November down by $386 million to $40.1 billion as at November 12, 2019 from $40.46 billion it closed in October.

According to the Lagos based company, “Over three months the fall has amounted to $4.44billion. The principal driver has consistently been the exit of FPIs.”

“Naira-denominated debt including bills bought under the CBN’s open market operations has a good story to share, based around the healthy returns and the (relatively) smooth operation of NAFEX. Yet some investors have exited nonetheless due to the chatter around the “R” (recession) word and the US-Chinese trade spat.

“On an aggregate basis, net flows to EMs last week were positive for both bonds ($1.6billion) and equities ($650million).

“The numbers ytd are positive by $60.3billion for bonds and negative for equities by -$27.3billion. The data from reliable industry sources include local currency bonds. One driver of the improvement in sentiment has been the better mood music surrounding US-Chinese trade relations.

“Nigeria’s stated reserves still provided cover for 11.2 months of merchandise imports in October on the basis of the BoP for the 12 months to Q1 2019, and 6.3 months when we add services. For Egypt and its 2018/19 fiscal year (July-June), the comparable figures were 8.2 months and 6.9 months.

“Its short-term BoP prospects look stronger (than Nigerias). In 2018/19 it posted a net services surplus (of $13billion) and a net FDI inflow.

“Measures for reserves differ. The SARB has the most transparent definition of the international liquidity position to include forward transactions as well as its substantial holdings of gold. South African reserves rose in October on the back of a $720illion unwinding of the forward position. The Nigerian data are gross, cover just fx and exclude swap contracts.”

A deputy governor of the Central Bank of Nigeria (CBN) and a member of the Monetary Policy Committee (MPC), have expressed fears that the persistent fall of Nigeria’s external reserves in recent times may induce exchange rate crisis and trigger capital outflows from the country.

Joseph Nnanna and Robert Asogwa, deputy governor in charge of economic policy and an MPC member respectively, expressed fears in their personal statements at the last meeting of the MPC

Asogwa, in his submission, explained that some considerable pressures still exist as the conditions of external reserves and current account balance seemed to have worsened in between the MPC meetings.

“CBN staff report shows that gross external reserves as at end of August 2019 declined by 4.7 per cent when compared to the levels at end July and there are expectations of additional declines by the fourth quarter of 2019.

“There are, however, fears that this declining trend in external reserves may affect exchange rate stability in the near future,” he said.