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External reserves can’t pay for more than 3 months of imports

By on May 7, 2015

The nation’s foreign exchange reserves fell one per cent month-on-month to $29.5 billion by April 28, from $29.8 billion a month earlier, the central bank said weekend. This implies that the reserves at the current rate of importation can support just three months of import.
naira-DollarThe reserves were down 22.6 per cent year-on-year when they stood at $38.14 billion. The apex bank, Central Bank of Nigeria has used its foreign exchange reserves to support the local currency in the wake of falling global oil prices.

At the foreign exchange market last week despite dollar auction sales worth $91.2 billion by international oil companies on Monday, the Naira closed flat at N199.10/$1.00 at the inter-bank market. This rate was maintained throughout the week. Similarly, the CBN’s clearing rate steadied at N197.00/$1.00 for the week.

As a follow up to the CBN’s withdrawal limit on overseas card holders to $50,000 (from $150,000) per annum and daily cash withdrawals to $300, the apex bank has further clarified that customers’ cards linked to domiciliary accounts overseas are not affected. Demand for the dollar by travelers may increase locally as a result of this decision, market operators say they expect exchange rate to continue to trade within the current level at the inter-bank segment of the foreign exchange market in the coming week.
However, at the BDC segment of the foreign exchange market, the Naira depreciated by N3.00 or 1.3 per cent to N220.10/$1.00 from N223.10/$1.00

The national economy, pre-general elections was facing huge financial haemorrhage as politicians, corporate bodies and foreign investors moved funds massively out of the country as well as from Naira to dollar. In January 2015, data available at CBN showed that the sum of $2,196,805,444.97 was paid out by the CBN as international remittances on behalf of Nigerians. In February, the sum of $1,273,415,392.55 went out as payments.
In a survey of payments made by the CBN on behalf of the public in 2014, a total of $22.1 billion went out of the country in five weeks, an average of $4.5 billion a week. While about $3.083 billion went out in the week ending 31st July 2014, the amount of foreign exchange flowing out of the country rose to $4.2 billion for the week ending 30th August. It however dropped to $4.1 billion on the 30th of September and moved astronomically to $5.29 billion for the week ending 31st October 2014. The foreign exchange outflow went further up to $5.35billion for the week ending November 30th. This capital flight has resulted in the crash of the naira exchange rate which had remained stable before the election and the crash of the international crude oil price.

CBN defends Naira with $4.7bn

The Central Bank of Nigeria in the bid to raise the value of the local currency has spent $4.7 billion so far this year to defend the naira even as the nation’s external reserve fell further to $29.6 from $29.6 billion at the middle of April 2015. Data published by the CBN on its website show that the external reserve fell by $189 million from $29.778 billion on April 2nd to $29.589 billion on April 9th. Consequently the reserve has fallen by $4.879 billion since December 31st 2014.

Commenting on developments in the nation’s foreign exchange market in the first quarter of the year, Managing Director/Chief Executive, Financial Derivative Company Limited, Mr. Bismarck Rewane had said that the apex bank had so far spent $4.7 billion to defend the naira this year, adding that the nation’s external reserve import and payments cover has fallen to 4.8 months, 1.2 months below the international standard for healthy external reserve.
Rewane also stated then that the 13 per cent appreciation of the naira in the parallel market in the last two weeks to N197 per dollar from N225 was due to election sentiment and elimination of fear premium. He predicted that the appreciation would soon be reverse and the naira would depreciate further because the fundamentals remain unchanged. “At the parallel market, the naira will trade at N215-N220 against the dollar again”, he said”.

Rewane advised the incoming government of the General Mohammudu Buhari to allow the naira find its true value, calling for reduction in interest rate and easing of monetary policy stance.

Nigerian stocks rally as Kenya sinks in 1st divergence since ’13

At the Capital Market Nigerian equities posted the biggest gains in sub-Saharan Africa in April, helped by a reversal of investor flows that’s seen the market benefit at Kenya’s expense for the first time in 16 months. The Nigerian Stock Exchange All Share Index rallied 9.3 per cent in April, the most among 14 gauges on the continent, and the steepest gain since May 2013. The FTSE NSE Kenya 25 Index is down 0.6 per cent in April, its first retreat in six months. It marks the first time since December 2013 that the measure has declined while Nigeria’s index has risen.

Nigerian assets soared after President Goodluck Jonathan conceded defeat to former military ruler Muhammadu Buhari on March 31, soothing fears of a dispute in Nigeria, which has a history of election-related violence. “The clear, peaceful, and seemingly fair conclusion of Nigeria’s presidential, legislative, and state elections has boosted investor sentiment,” John Ashbourne, an Africa economist at Capital Economics Ltd. in London, said. In contrast, confidence toward Kenya soured with the decline in tourism and surging imports that’s pressuring the country’s current account deficit, he said.

The Kenyan shilling weakened 0.2 percent to 94.70 per dollar by 4:49 p.m., the lowest since November 2011 on a closing basis. It dropped 2.5 percent in April, the second straight 30-day loss.

Nigerian Gains

Nigeria’s All-Share Index rose 1.9 percent to 34,708.11 in Lagos, the commercial capital, to erase this year’s losses. In Nairobi, Kenyan equities rose 0.4 percent to 229.81 for a 2015 advance of 6.2 percent.

The Nigerian naira strengthened 0.1 per cent per dollar to 199, paring the loss this month to 0.1 per cent. The naira has been trading around 200 per dollar after the central bank in February extended trading restrictions introduced since mid-September to control the currency’s value. It dropped 21 per cent to a record low of 206.32 between the end of June and Until the election results were announced at the end of last month, Nigerian equities were the world’s worst performers, with investors deterred by uncertainty over the vote and a 40 percent plunge since June in the price of crude oil, which accounts for about two-thirds of government revenue and 90 percent of export earnings. Feb. 12 as oil prices slumped.

 

[Vanguard]