According to CBN data, Nigeria’s gross official reserves fell more slowly by -USD167m m/m to around USD34.0bn at the end of July 2023, compared to a fall of -USD975m in June 2023. The drop in the official reserves in July is consistent with the steady attrition observed since August 2022. Year-to-date, the reserves have fallen by roughly -USD447m each month on average, and by nearly -USD440m since August 2022. The decreasing official reserves have placed limitations on the Central Bank’s capacity to engage in foreign exchange market interventions.
The total reserves as at end-Jul ’23 covered 7.0 months of merchandise imports on the basis of the balance of payments for the 12 months to Dec ‘22 and 5.3 months when we add service.
However, for a more accurate picture, we must adjust the gross reserve figure (and the import cover) for the pipeline of delayed external payments which has been roughly estimated at around USD3.0bn by various source.
With respect to the other two markets that we track, our chart shows that Egypt’s official reserves have grown steadily since Sept ’22, rising by USD90m to USD34.9bn as at Jul ’23.
It is worth noting that Egypt’s reserves surpassed those of Nigeria in June ‘23, marking the first time that this has occurred since Feb ’22.
South Africa’s international liquidity position, which is broadly comparable with Nigeria’s gross official reserves, also increased by around USD690m toUSD55.6bn in Jul ’23.
Similar to Egypt, Nigeria has initiated significant fx reforms, in order to enhance investor confidence, attract foreign investment, and stabilize the economy.
However, a major distinguishing factor is Egypt’s diverse export trade, with mineral and petroleum products accounting for around 35% of total export trade value. This compares with roughly 80% to 90% for Nigeria.
Despite the concentration of Nigeria’s export trade, it is anticipated that the fx reforms, as well as the elimination of fuel subsidies, will yield some positive results in the medium term.
FBNQuest Research
