By Dipo Olowookere
For the second consecutive month, Nigeria’s external reserves depreciated, closing at $45.8 billion at the end of August 2018.
In July and August 2018, the total amount lost by the foreign reserves of Africa’s largest economy was $1.95 billion.
In August alone, the sum of $1.28 billion was lost, while the sum of $670 million was the amount lost in the month of July.
According to analysts at FBNQuest Research, the decline recorded in the month of July was mainly due to the repayment by the Federal Government of Nigeria (FGN) of $500 million to holders of a maturing Eurobond that is yet to be refinanced.
It further said, “This latest decline can be attributed to the changed stance of some players in the offshore community.”
Nigeria has suffered from contagion emanating from large and liquid emerging markets such as Argentina and Turkey. Policy flaws have contributed to the very large hits taken by these two markets.
According to FBNQuest Research, there have been no obvious flaws adding to the much smaller hit taken by Nigeria. It appears that offshore fixed-income players have sometimes exited the market on the maturity of their investments. Their remaining holdings have been credibly estimated at $20 billion.
The trend in weekly transactions at the investors’ and exporters’ forex window (NAFEX) has been downwards. Last week, they rose well above $1 billion for the first time since late June. (The transactions cover both sides of trades.)
Separate data collated by FMDQ showed that the CBN has been the largest source of inflows in the last five weeks reported.
Reserves at end-August covered 16.4 months’ merchandise imports, and 9.9 months when we add services on the basis of the balance of payments through to March 2018. This is a healthy fiscal buffer by any criteria.
The CBN’s definition of gross reserves excludes gold and SDR holdings but includes swap transactions with local banks, for which the largest independent estimate we have seen is $7 billion. It also includes Eurobonds, which can be justified on the grounds that these are FGN borrowings lodged with the CBN.
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