We see from CBN data that gross official reserves rose by USD79m to USD33.4bn in July. The buffer decreased steadily to USD33.09bn in the first 12 days of the month, before a steady increase in the remaining days of July.
To obtain a fuller picture, we should adjust this gross figure for the pipeline of delayed external payments: this adjustment has been estimated at up to USD3bn (by the IMF in late 2020), substantially less (by the FGN in March) and above USD4bn (by market commentators in May).
Total reserves at the end-July covered 7.7 months’ merchandise imports on the basis of the balance of payments for 2020, and 5.6 months when we add services.
We are reasonably comfortable with reserves at this level, and see a further rise in the short term because, of the four potential sources of augmentation identified in an earlier daily (Good Morning Nigeria, 09 June 2021), the country has made significant and positive developments in two: the Eurobond issuance and the IMF’s allocation of SDRs to all members.
The other two sources are oil prices which have declined slightly to USD69/b from their YTD peak price of USD77/b, and loans from multilateral agencies.
Last week, as widely expected, the Board of Governors of the IMF approved a general allocation of SDRs equivalent to USD650bn to boost global liquidity. The allocation is to become effective on 23 August ’21 and will be credited to member countries in relation to their existing quotas in the Fund. For Nigeria, this translates to about USD3.35bn.
The Fund’s managing director, Kristalina Georgieva, reiterated that she hopes wealthier member nations would agree to “voluntary channelling” of their allocations to the “poorest and most vulnerable states”, possibly by scaling up lending through the IMF’s interest-free Poverty Reduction and Growth Trust (PRGT), among other options.
This could amount to an additional transfer of up to USD100bn. Whether Nigeria qualifies is highly debatable, given that it is not classified as low income.
Last week as well, the FGN appointed transaction advisers for its proposed USD6.2bn Eurobond issuance. We recall that the Debt Management Office is mandated to raise NGN2.34trn from the international capital market to partly fund the 2021 Appropriation Act deficit. Nigeria’s last Eurobond issue was in 2018 where it raised USD2.86bn.
On the CBN’s “naira 4 dollar scheme”, we note that at this point, we do not have the data to determine whether the incentives are sufficient to make a sizeable impact on remittances and therefore indirectly on reserves.
Finally, while we acknowledge that the official reserves will see some increase in the near term, we note that given the famous pipeline of delayed external payments, and the fact that as we return to said normality Nigerians will begin to make good use of their education, health and business travel allowances, the months’ import cover will likely also deteriorate.