Nigeria’s external reserves have risen to $41.83 Billion as of October 29, 2021, compared with $33.40 Billion recorded on July 30, 2021, data from the Central Bank of Nigeria (CBN) has indicated. The accretion in external reserves followed the issuance of $4 Billion Eurobond by the Federal Government and the receipt of the $3.5 Billion Special Drawing Right (SDR) from the International Monetary Fund (IMF) on August 28, 2021.

However, the sustainability of this accretion has become a concern among analysts and stakeholders. “Given the current level of imports, especially fuel imports, and the pressure in the forex market which is yet to abate, the accretion to reserves does not appear sustainable especially against the backdrop of the fact that strong oil prices require a corresponding increase in crude oil production to make any significant impact on foreign reserves”, Uche Uwaleke, a professor at the Department of Banking and Finance, Nasarawa State University, Keffi, said.

He admitted that the surge in external reserves was due to the recent Eurobonds issuance the country made. Data from the CBN, according to FBNQuest show that gross official reserves rose by USD5bn (13.7% m/m), to hit USD41.8bn last month, its highest point since October 2019. This is its sixth consecutive month-on-month increase. “For a more accurate picture, we must adjust this gross figure for the pipeline of delayed external payments,” analysts at FBNQuest said in a report.

Total reserves at the end of October covered 10 months’ merchandise imports on the basis of the balance of payments for the 12 months to March 2021, and 7.7 months when we add services. This is a healthy buffer,” the analysts said. Mohamed Abu Basha, head of macroeconomy – EFG Hermes, had predicted that Nigeria’s foreign reserves would cross the USD40bn mark after reserves were boosted in August with the USD3.3bn SDR allocation, providing a significant liquidity lift to the country’s foreign reserve position.

Doyin Salami, Chairman, Presidential Advisory Committee on the Economy noted in his October presentation that “Weaker foreign investment inflows, high demand for foreign currency to finance imports and other needs and possible clearance of FX backlogs are factors that continue to weaken external reserves”.

A report by the FBNQuest noted that U.S Fed is set to taper its asset purchase programme and revert to monetary policy normalisation. This move, which will eventually be mirrored by other advanced economies, the report said would likely result in a redirection of international capital flows away from emerging markets.

Oil prices remain high, supported by tight supply even as demand has rebounded stronger than anticipated. In its latest commodity markets outlook, the World Bank forecasts crude oil prices to average USD70/b this year, USD74/b in 2022 due to stronger oil demand, followed by a decline to USD65/b in 2023. To fully benefit from rising oil prices, Nigeria must ramp up its production. According to OPEC data obtained from secondary sources, Nigeria’s oil output (excluding condensates) was up 12 percent m/m to about.45mbpd in September.

“We believe the rise in gross official reserves is very close to its peak and expect to see a decline in coming weeks as inflow into the reserves wind down and the utilisation of education, health, and business travel allowances begin to reflect,” said FBNQuest.

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