Nigeria’s foreign reserves may surpass $40bn–– Analysts
A group of analysts at EFG Hermes have expressed that the country’s foreign reserve has been projected to surpass the $40 billion threshold by September 2021, following the $3.35 billion direct allocations approved by the International Monetary Fund (IMF).
Nigeria is set to receive an allocation $3.35 billion as part of a historic general allocation from the IMF. This is part of a $650 billion SDR allocation, which is aimed at providing a boost to countries’ resources in order to help narrow external funding gaps and increase reserves.
According to a report, released at the virtual roundtable, Nigeria is regarded as the largest relative gainers from the SDR allocation within their coverage universe.
Specifically, the report noted that the direct allocation would boost reserves by c10 per cent, while an additional planned minimum $3 billion Eurobond issuance could boost reserves by c20per cent to over $40 billion.
Also, such a boost according to EFG Hermes would complement high crude oil prices to improve the country’s FX position, which remains contingent upon further Naira adjustment.
Recall, that the Central Bank of Nigeria (CBN) recently banned the sales of forex to BDC agents, in a move to defend the Naira from illegal sales of forex in the county.
The CBN governor announced the decision during the MPC meeting, relating the action of the BDCs mishandling FX as putting the country’s financial system at risk as they looked for abnormal returns.
According to EFG’s report, at face value, the decision chops off nearly $450 million/month of FX supply (c30% of total FX supply to the market).
Meanwhile, a cursory look at the data from the CBN reveals that Nigeria’s forex reserve has gained about $176.13 million, month to date at $33.58 billion, which is still a distant level from the projected $40 billion by EFG Hermes.
“CBN has recently taken a relatively symbolic move to unify exchange rates; possessing the ammunition to ease FX shortages later this summer would encourage further Naira weakness (we maintain a target of N430/$1), together with further upward adjustment in domestic market rates.
“We would turn way more bullish if Nigeria benefitted from on-lending, but we see it as unlikely that this administration would engage in an IMF programme of any sort,” the report said.
The Managing Director, Head of Frontier Markets Research, Kato Mukuru, said “with the boost from the SDR allocation, Eurobond issuance, and more swaps, we could see an attempt by the CBN to clean up some of the backlogs and try to harmonise the exchange rate. These in his opinion could see the Naira strengthen at N430/$1.”
