The Nation Newspaper

Tag: reserves

  • Foreign reserves drop below $30b

    The nation’s foreign reserves dropped to below $30 billion for the first time in five months, putting more pressure on the Central Bank of Nigeria’s (CBN’s) bid to defend the naira and avoid devaluation.

    Gross reserves slipped to $29.92 billion on November 30, the first time they have fallen below $30 billion since July 13, according to data from the CBN.

    They have fallen by 20 per cent since the end of June 2014, when Brent crude prices began a more than 60 per cent plunge, hammering Nigerian finances.

    The foreign exchange reserves fell to $30.04 billion by November 26 from $30.10 billion the month before. The reserves were down 18.6 per cent on the year from $36.9 billion in the same period last year.

    Also, the reserves fell to $30.13 billion by October 27, down 0.84 per cent from a month ago, the CBN data also showed. The fall in reserve reflects the sale of dollars by the central bank to defend the naira currency which has been hit by the plunge in oil prices.

    The dollar reserves have been hit by a plunge in crude prices and the central bank’s decision to defend the currency.

    “With the oil price remaining low, the pressure isn’t dissipating,” said Ikechukwu Iheanacho, who manages N40 billion ($202 million) of stocks and bonds for Lagos-based Chapel Hill Denham Securities Ltd. “It raises questions about how long the central bank can continue defending the naira.”

    The naira has been all but fixed at 197-199 per dollar since early March after Governor Godwin Emefiele restricted bank access to foreign exchange, even as other major oil exporters such as Russia, Colombia and Angola let their currencies weaken.

    In June, Emefiele stopped importers of about 40 items, including toothpicks and glass, from obtaining dollars.

    Emerging-market investors including Aberdeen Asset Management Plc, AllianceBernstein and Investec Asset Management have sold Nigerian bonds and stocks this year to avoid what they see as an inevitable devaluation, which would cause losses on their holdings in foreign-currency terms.

     

  • Nigeria’s exit from bond Index ’ll hurt external reserves, says economist

    What are the consequences of global agency JP Morgan’s delisting of Nigeria from the Emerging Market Bond Index (EMBI)? The action will threaten Nigeria’s $31 billion external reserves and also hurt its financial and economic rating, says an economist, Mr. Tilewa Adebajo.

    In a report obtained by The Nation, Adebajo, CEO, CFG Advisory, said the cost of borrowing would increase, noting that access to the international financial markets for sovereign and corporate entitles will be limited.

    The exit, Adebajo argued, would stem the inflow of portfolio investments which peaked at $20.5 billion in 2013.

    JP Morgan’s EMBI, with around $210 billion in assets under management, is the most widely used and comprehensive emerging market sovereign debt benchmark. Nigeria was added in the index in 2012 when liquidity was improving, making it the second African country after South Africa to be included.

    “To state the obvious, the lack of articulation on policy and economic direction by the new government is not helping matters and is unsettling the financial markets. Time is money. And in the fast emerging global fiscal order, lost time and opportunities may never really be regained,” he said.

    Adebajo said the government’s next challenge is the validation and structured financing plan for the current fiscal deficit, estimated at N6.5 trillion.

    “The government’s actions on the fuel subsidy could significantly increase this figure. With the restructuring and swap of state government commercial bank loans into Treasury Bonds, the new government has increased the domestic debt profile by N1 trillion overnight. Unfortunately, state governments have not been compelled to execute conditional covenants, such as adhering to the tenets of the Fiscal Responsibility Act, which stipulates provisions for fiscal discipline,” he said.

    He said with a $49 billion domestic debt and $10.8 billion external debt overhang, Nigeria is now committing 23 per cent of its fiscal revenues to servicing debt.

    “With the levels of projected fiscal deficit, we might exceed the revenue-to-debt service best practice benchmark of 25 per cent by year end. The alignment of fiscal and monetary policy which the economy benefitted from over the last five years seems to, have been lost over the last several months,” Adebajo said.

    “Nigeria’s financial intermediation rates at 25 per cent cannot support productive investment and development; it will also stunt economic growth. Major reforms are therefore required in the banking system to support single digit rates. Banks also have to better deploy technology to reduce and manage costs. Their productivity and efficiency levels will consequently improve leading to a more competitive financial services sector.

    “Beyond the macro economy, we need to do a critical reappraisal of our trade and investment policies needed to ensure that they are properly integrated into the global value added system,” he said.

    “Beyond the macro economy, we need to do a critical reappraisal of our trade and investment policies, we need to ensure they are properly integrated into the global value- added system. The domestic gains and success we have had in the cement sector with import substitution and backward integration has primarily been, driven by an individual and unfortunately not yet replicated, nor institutionalised in other critical sectors such as agriculture, another potential engine room of Africa’s political economy considering its huge social development and value chain effect.

    “Drastic attention also needs to be paid to Customs and Excise reforms and management to ensure proper implementation of Trade Policy, Industrial Development and Investment. The corruption menace of duty waivers, duty evasion, smuggling and weak import documentation also continues to affect the naira, clearly disrupting and discouraging industrial development, investment and expansion.”

     

  • Forex restrictions grow foreign reserves to $2.5b

    Foreign exchange reserves rose by $2.5 billion last month to hit $31.5 billion.

    Head of Markets, FBN Capital, Olubunmi Ashaolu, in a report, attributed the increased earnings to the introduction of the Central Bank of Nigeria’s (CBN’s)  forex restrictions policy.

    CBN, in a circular dated June 23,  banned 41 imported goods from forex either in the interbank market or in the bureaux de change.

    “We have heard some well-informed estimates that imports of the listed goods had accounted for 20 per cent of forex utilisation: this would amount to about $900 million per month on the basis of the CBN’s figure for utilisation (for goods and services) for first quarter 2015,” he said.

    Ashaolu said import demand had eased due to the squeezing of real incomes, adding that the Nigeria National Petroleum Corporation (NNPC) has started to transfer its forex reserves from the commercial banks to the CBN.

    “This brings us to the untested theory that the plugging of forex leakages has begun. This could also explain why the Federation Account Allocation Committee (FAAC) distribution of June revenues was higher than May’s when oil prices would have suggested the opposite,” he said.

    According to CBN regulations, forex from the markets (whether direct CBN forex sales, the interbank or the parallel markets) can no longer be used to import these items. The restricted list includes some food items, such as rice, margarine, imported palm oil, other vegetable oils, and tomato paste.

    The objective of the restrictions is to curb demand for imports, safeguard the forex reserves, which have been affected by declining oil earnings and portfolio outflows, and boost local production.

     

  • Local debt yield up on new cash reserves rule

    Local debt yield up on new cash reserves rule

    Nigeria’s bonds yields rose slightly yesterday after Central Bank of Nigeria (CBN’s) harmonisation of the Cash Reserves Requirement (CRR) on public and private sector deposits triggered a sell-off by some investors.

    At it’s rate-setting meeting on Tuesday, the (CRR), the amount the CBN requires banks to set aside, was revised to 31 per cent for both public and private sector deposits. Previously the CRR on private sector deposits was 20 per cent and 75 per cent for public sector deposits.

    Some banks that held more of the private sector deposits in CRR would be required to make an additional provision of 11 per cent due by today, triggering the selling down of their investment in bonds to raise additional money.

    “Some banks that have their deposits skewed to private sector are selling down their bond holdings in order to make provision for the increase in the CRR on the deposit, driving up yields at the market,” one dealer said.

    The yield on the benchmark bond maturing in 2024 inched up to 13.63 per cent from 13.60 per cent the previous day, while that on the 2022 paper rose to 13.59 per cent from 13.51 per cent. Interest rates on short borrowing among banks eased, following the injection of portion of the budgetary allocations to states and local government in the banking system.

    “Market liquidity increased to around N235 billion ($1 billion) on from deficit level the previous day,” a currency dealer said.

    Secured Open Buy Back (OBB) eased to seven per cent, while overnight placement fell to 8 percent from 15 per cent the previous day, traders said.

  • Nigeria not benefitting from gas reserves

    Nigeria not benefitting from gas reserves

    Despite her enormous gas reserves this has not lifted the country’s economic fortunes as expected, experts have said.

    Experts who gave this damning verdict at a public forum, in Lagos, recently, stressed that if the nation’s gas reserves is well harnessed, this can help to improve the nation’s economic fortunes tremendously.

    The event was at the 12th annual Aret Adams Memorial Lecture series, with the theme: ‘Gas: An Engine of Growth for Nigeria.’

    In his remarks, the Managing Director/Chief Executive Officer, Frontier Oil Ltd,Mr. Dada Thomas, urged the federal government to strengthen its vast gas reserves to augment the losses being suffered as a result of the dwindling oil prices.

    He also urged government to pay more attention to gas production as it is one of the country’s major revenue generation sources, even as he regretted that Nigeria had not given the sector the necessary attention before now.

    According to him, “The country had not paid much attention to the production of gas before now. I implore Nigerians to understand that the gas revolution has started, even though it has been slow here. I think in the next 10 years or so, we will see a major improvement in the way gas is being harnessed and used in the country.

    “This will ensure that we grow our economy and improve the quality of life of Nigerians. It is good for the country to join the success story about production and utilisation of gas around the world, so that we won’t be left out.” Speaking further, Thomas also faulted the federal government over gas price fixing, saying the development is a disincentive to gas producers in the country.

    He suggested the need for the federal government to conduct special licensing round for the sector so as to create room for more gas investors to invest heavily and unleash the potential of the sector.

    “Considering the challenges besetting the gas sector, it will not be too much for the federal government to consider tax holidays for operators in the gas sector.”

    “The passage of the Petroleum Industry Bill into law would be an added advantage to the sector in the area of growth, investment and prospect,” while noting that the dwindling oil prices was caused mainly by the development and sustenance of the United States shale gas revolution.

    He also warned that the slated March 2015, set out by the Federal Government for the withdrawal of licences of non-performing marginal field operators still loomed.

    He said, “The Marginal Field Operators who are not producing will know their fate in March 2015, when the government will decide whether or not to revoke their licences. My prayer is that government should look at them critically before they take their decisions. By the end of March, we will know which marginal field is retained and the ones that lost their licences.”

    He added that, “My message is that those who manage to retain their licences should be effective in carrying out their businesses. I think my company and some others have shown that the marginal fields could produce maximally towards the development of the oil and gas industry in the country.”

    Speaking earlier, the Group Executive Director (Power and Gas) of the Nigerian National Petroleum Corporation, Mr. David Ige said the Nigerian National Petroleum Corporation (NNPC) has said it recorded over 50 attacks on pipelines within its pipeline network in the last two months.

    He said NNPC would continue to champion aggressive campaign to nip vandalism in the bud, with a view to realising the nation’s gas needs and potential in the country.

    According to him, “Nigeria has what it takes to use gas as an engine of economic growth.”

    He, however, urged Nigerians to exercise patience for the potential of the sector to come to fruition.

    He said the government was aggressively driving the gas sector, to boost local consumption through competitive pricing as well as export of the product.

    The GED said the current growth pattern of the gas sector, which has also witnessed a phenomenal reduction in gas flaring in the country, would also add significant value to the power sector.

    In his closing remarks, Dr. Dr. Jackson Gaius-Obaseki chairman of the occasion who was represented by Bassey Omiyi, former Managing Director/CEO, Shell Petroleum Development Company, lauded the speakers for the quality insights, even as he impressed on stakeholders in the oil and gas sector to step up efforts aimed at growing the fortunes of the sector.

  • Impact of election delay on forex, reserves, by analyst

    Impact of election delay on forex, reserves, by analyst

    The prolonged election-related uncertainty is expected to cut inflow of foreign exchange or at most, delay such inflows, Managing Director, Head -Africa Macro Global Research at Standard Chartered Bank, Razia Khan, has said.

    She explained in a report that many offshore investors, still attracted to Nigerian yields, have been waiting for the uncertainty of the election period to pass before recommitting themselves to Nigerian markets.

    Nigeria’s presidential and parliamentary elections, originally scheduled for February 14, were at the weekend, postponed to March  28. Gubernatorial elections will be delayed to April 11. This comes after security agencies informed the Independent National Electoral Commission (INEC) that they would be unable to provide adequate security for elections on February 14.

    Khan said the Central Bank of Nigeria (CBN) has adopted a pragmatic approach to exchange rate and reserve management during the period of weaker oil prices.

    “The CBN tightened policy in November while simultaneously devaluing the official retail Dutch Auction System (RDAS) rate to more realistic levels (at the time). Access to foreign exchange through the RDAS window was also limited in order to safeguard foreign exchange  reserves. Perhaps recognising that investor inflows ahead of an election were unlikely, the CBN did not tighten policy further at its January 2015 policy meeting,” she said.

    Khan said with investor inflows delayed, it is expected that the foreign exchange  reserves would come under further pressure.

    She predicted that further CBN tightening in March looks increasingly doubtful. Slowing growth may also have been factors behind that decision. “The election delay puts at risk our call for further policy tightening at the March Monetary Policy Committee (MPC) meeting. With oil prices still languishing at low levels, resulting in minimal injections into the foreign exchange reserves, we expect the reserves to come under further pressure, perhaps dropping to about six months of import cover,” she said.

    The analyst said that a further tightening of administrative controls is plausible, with fewer categories of demand eligible for RDAS auctions.

    “We expect spreads between Nigeria’s parallel and interbank foreign exchange rates to remain pressured, although an agreement by Nigeria’s Financial Markets Dealers’ Association limiting daily NGN depreciation in the interbank market to two per cent will likely slow the pace of weakening,” she said.

    She predicted that the postponement of election will also potentially delay the formulation of policy aimed at helping Nigeria cope with lower oil prices. “The 2015 federal government budget currently assumes a benchmark oil price of 6$5/barrel (bbl). Efforts to accelerate non-oil revenue collection, especially measures that do not require legislative approval, are likely to continue in the near term. These include new levies on luxury imports, a review of tax exemptions granted to some investors, accelerated tax audits, and a potential doubling of the Value Added Tax (VAT) rate to 10 per cent. We see little reason why the VAT rate increase would have to wait until after the election, although there is likely to be some uncertainty around the timing,” she said.

    She added: “We do not share the view of many market participants that the authorities will wait until after the election to announce a large official devaluation of the naira.”

  • External reserves may drop to $30b, say analysts

    External reserves may drop to $30b, say analysts

    Analysts at Financial Derivatives Company (FDC) see external reserves dropping to $30 billion from current $34.5 billion in the coming months.

    Its Chief Executive, Bismarck Rewane said the naira under pressure, could cross N200 to a dollar and that further depreciation of three to five per cent at the official market is expected.

    He explained that said the Monetary Policy Rate (MPR) will be reduced cumulatively by 1.5 per cent per annum adding that economic growth is weaker but outlook remains positive.

    Rewane had said the reserves which stood at $37.87 billion as at April 3, had about $10 billion of which is in hot money. He said reversal of capital flows into the economy will intensify, further depleting external reserves.

    Hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.

    These speculative capital flows are called “hot money” because they can move very quickly in and out of markets, potentially leading to market instability.

    Rewane said there would be further external sector imbalances in a run-up to this year’s elections even as equity market imbalance is likely to increase with stock market correction continuing.

    He said spill over from Russia-Ukraine crisis poses downside risks for neighbouring countries and Europe with 20 per cent of European Union (EU’s) energy consumption is from Russia with 32.5 per cent of Nigeria’s imports coming from the EU.

    He said countries that have tried to prop up their currencies stood the risk of depleting their foreign exchange reserves adding that Nigeria’s Gross Domestic Product (GDP) growth is estimated to spike to 7.22 per cent during the past quarter as against 7.72 per cent recorded last December.

    GDP rebasing is expected to boost Nigeria’s estimated size by about 40 to 70 per cent and is almost certain to push it ahead of South Africa to become Africa’s biggest economy.

    The National Bureau of Statistics (NBS) changed the base year for calculating Nigeria’s GDP to 2010 from 1990 to reflect changes in the economy of Africa’s most populous nation, and more accurately assess the size of its current output.

    Most governments overhaul GDP calculations every few years to reflect changes in output and consumption, but Nigeria has not done so since 1990, meaning sectors such as the internet, telephoney and even the “Nollywood” film industry have had to be newly factored in to give a truer picture.

    He said Nigeria’s GDP growth is accelerating but hampered by insecurity, which currently has five to eight per cent negative impact on nominal GDP.

    Also, data from the CBN showed that gross external reserves as at December 31, 2013 stood at $42.85 billion, representing a decrease of $ 0.98 billion or 2.23 per cent compared with $43.83 billion at end- December 2012.

    The reserves have further dropped to $38.79 billion as at March 12 after dropping by $3 billion in one month.

    The reserves were at $42.77 billion on February 3, and dropped to $39.72 billion on March 3. It has further dropped to $37.8 billion in March 28. Analysts said the reserves declined as imports of fuel and foods soared.

  • Foreign exchange reserves record $34.49b

    Foreign exchange reserves record $34.49b

     •Loses  $2.3b in one month    

    The Central Bank of  Nigeria (CBN) yesterday pegged the nation’s foreign exchange reserves at $34.49 billion (N5.74 trillion) as at Jan. 5.

    The News Agency of Nigeria (NAN) reports that the CBN posted the foreign exchange reserves data on its website.

    According to the bank, the figure represents an increase of $20 million  (N3.36 billion) from the $34.47 billion  (N5.79 trillion) recorded on Dec. 31, last year.

    The bank said the $34.49 billion (N5.74 trillion) represented the ‘gross’ amount while $33.52 billion  (N5.63 trillion) was ‘liquid’ and $975 million (N163.8 billion) ‘blocked’.

    NAN reports that the Federal Government had through fiscal policies made attempts since 2013 to shore up the foreign reserves to $50 billion (N9.05 trillion).

    The CBN had in 2014 relied heavily on external reserves to support the Naira which came under pressure following falling international prices of crude oil.

    Crude oil prices at the international market have continued to rally between $55 and $60 per barrel since December, last year.

    According to the CBN, the continuous pressure on the foreign exchange market was also attributable to the rise in the internal demand for the dollar.

    The CBN Governor, Mr Godwin Emefiele, had earlier said the country had spent huge assets from the foreign reserves in ensuring that the official exchange rate was maintained at its previous value of N155 to a dollar.

    In spite of government’s efforts to shore up the naira, the CBN devalued it to N168 to a dollar in November, last year.

    Meanwhile, CBN data showed that official reserves decreased by $2.3 billion in December to $34.5 billion.

    Analysts at FBN Capital attributed the latest fall to the result of the sharp decline in foreign exchange inflows from the oil industry and the related exit of some offshore portfolio investors.

    “The end of the holiday season may have applied the brake to import demand but the more significant development has been the halving of the oil price over the past six months.

    The CBN feels that foreign exchange demand is in part speculative and has therefore issued a number of circulars. On December 17, it ruled that authorised dealers must have flat foreign exchange positions at the close of each trading day rather than the previous one per cent of shareholders’ funds.

    Head, African Markets at FBN Capital, Olubunmi Ashaolu said the CBN has mandated banks’ customers had to utilise foreign exchange bought on the interbank/autonomous markets within 48 hours, failing which they had to surrender it to the CBN.

    He said: “We suspect that these circulars will, over time, prove to be porous. Our greater concern is the further depletion of offshore holdings of Nigerian securities in the face of pressure on the oil price and hence on the naira exchange rate.

    “Clearly the CBN cannot continue to draw down reserves at the rate of more than $2billion per month for long. Since the oil price is not expected to rebound quickly and since the CBN is unlikely to adopt a floating exchange rate regime, we should prepare for additional administrative measures,” he said.

  • Foreign reserves fall to $39.56b

    Foreign reserves fall to $39.56b

    The nation’s foreign reserves fell to $39.56 billion by September 26, down 0.15 per cent from the previous month, data from the Central Bank of Nigeria (CBN), have shown.

    The reserves stood at $39.62 billion in August and were $45.66 billion in September last year. Currency traders attributed the fall to draw downs by the CBN to support the naira.

    Data from the CBN, showed that the reserves stood at $39.65 billion on August 25 and  $38.4 billion on July 17. The rate of accretions to the reserves has been marginal but consistent since the CBN reviewed the Bureau De Change (BDC) policy guidelines.

    The reserves were at $37.23 billion on June 25; $37.26 billion on June 26; $37.31 billion on June 27. The reserves also rose to $37.54 billion on July 1 and continued the upbeat till the current position.

    Further analysis showed that before the upbeat, the reserves had maintained a steady decline after closing last year at $42.85 billion.

    The year-end figure represented a decrease of $0.98 billion or 2.23 per cent, as against the $43.83 billion recorded at end- December 2012. The reserves dropped to $38.79 billion as at March 12. Analysts said the reserves declined as imports of fuel and foods soared.

    But the CBN said the decrease was driven largely by the increased funding of the foreign exchange market in the face of intense pressure on the naira and the need to maintain stability, adding that the pressure on the external reserves was deemed to be consistent with the seasonal annual payment of dividends to foreign investors

    The CBN had on June 24, rolled out new guidelines for BDCs operation. The regulator raised the capital base for operators from N10 million to N35 million, plus additional caution deposit of N35 million to be kept with the CBN at zero interest rate.

  • Analysts doubt CBN’s expectations on foreign reserves

    Analysts at FBN Capital have said the Central Bank of Nigeria’s (CBN) expectations of foreign exchange reserves increase to about $45 billion by year-end may prove overly ambitious.

    The investment and research firm, said the apex bank uses administrative measures to support its exchange-rate agenda. It said the mandatory recapitalisation of bureaux de change to stem leakages is one of such measures.

    According to the firm, the fall in the international price of Nigeria’s benchmark Bonny Light crude to about $95/barrel, has fuelled fears that the CBN will be unable to hold the line on the naira exchange rate.

    “There remains a cushion of close to $20/barrel above the assumed export price in the 2014 budget, although in reality pressures in the market develop far more quickly, which we can detect from the reluctance of offshore portfolio investors to participate in the most recent auctions of Federal Government of Nigeria bonds and Nigeria Treasury Bills,” it said.

    According to the firm, official statements give the impression that some of the oil production losses have been recovered, a claim, it said, it was unable to confirm in the absence of a unified source of metering.

    “As for the price, we do not think that global demand warrants significant further weakness. We also point to the many geo-political risks and OPEC’s interest in arresting the decline. The level of official reserves has settled on a plateau of $39.6 billion this month, but still provides nine months’ merchandise import cover,” it said.

    Another measure to boost the naira, it said, is dollarisation of the banking system. “The CBN data through to March 2014 showed a limited build-up to 25.7 per cent of commercial banks’ total deposits,” it said.