According to the data published by the CBN, Nigeria’s gross official reserves decreased by USD91.6m to USD32.9bn in Dec ’23. This decline suggests the country’s gross external reserves fell by approximately USD4.2bn in 2023, indicating an average monthly depletion rate of -USD348m. Our chart below shows that the gross official reserves trend has been generally downward since Oct ’21. This is mainly due to the strong demand for foreign exchange by end-users, weak accretion to the reserves from export proceeds (primarily crude oil), and the declining trend in foreign portfolio inflows.
Total reserves as at end Dec ’23 covered 7.7 months of merchandise imports per the balance of payments for the 12 months to Jun ’23 and 5.7 months when we add imported services.
However, for a more accurate picture, we must adjust the gross reserve figure for the pipeline of delayed external payments and the encumbered portion of the reserves.
The reserve cover of 7.7 months (5.7 months including services) appears to have improved compared to the 7.1 months of merchandise import cover (5.3 months including services) as of Jun ’23.
However, this apparent enhancement is primarily attributed to import constraints resulting from limited access to foreign exchange for importers.
A significant factor worth highlighting is the -14% y/y decline in total merchandise imports to USD51.6bn for the 12 months ending Jun ’23 compared with the USD60.0bn for the year earlier period ending Jun ’22.
Late last year, the CBN began a gradual reduction of the backlog of fx forwards. Roughly USD2bn has been successfully cleared from an estimated outstanding amount of USD7bn.
We anticipate limited accretion to the external reserves this year due to challenges in raising Nigeria’s crude oil output from c.1.3 million barrels per day (mb/d) toward the 1.78 mbd envisaged in the 2024 budget.
Regarding pricing, expected OPEC production cuts may be offset by higher non-OPEC oil output, notably the anticipated rise in US production. This is likely to keep oil prices in equilibrium.
We forecast the gross official reserves at c.USD34.0bn by the end of 2024, slightly higher than the USD32.9bn it closed in 2023.
