NIGERIA’S Foreign Exchange (FX) reserve has continued its decline over the last few weeks and is currently at $33.6 billion, the lowest in 13 months, says CSL, the research arm of CSL brokers.
The firm noted that while this could reflect the lagged effects of the higher oil prices, as Nigeria’s crude oil receipts are not spot delivered,the resumptions of interventions at both the spot and forward markets in April must have increased pressure on the reserve.
“Beyond this, there are speculations that the surge in Covid-19 cases in India (one of the biggest buyers of Nigerian crude) must have affected demand for Nigeria’s crude oil, although there are no official numbers to back up this claim,” it stated.
Going by government estimates for foreign financing in the 2021 budget of N2.3 trillion ($5.6 bilion), foreign commercial borrowing is likely inevitable, it added.
According to the researchers, Nigeria is likely to raise between $4.0 and $5.0 billion this year.
The firm believes the relatively high oil price environment bodes well for a successful Eurobond issuance. Furthermore, foreign investors remain interested in African Eurobond, judging by the recent high subscription rate of 5x of Kenya’s Eurobond.
Also, the proposed increased Special Drawing Rights (SDR) allocation by the IMF for its member countries could support reserve accretion.
“The expectation is that Nigeria’s SDR allocation will likely be increased by about $3.0 billion and could prompt the government to approach the IMF for further RCF-type financing when the allocations are concluded in the third quarter of the year.
CSL Research recalls that the CBN recently stated that the currency is overvalued by about 5-10 per cent, with a fair value between $430-440.
Also, it was stated that as of March 2021, the backlog of unmet FX demand by Foreign Portfolio Investors (FPIs) is estimated at less than $1.0 billion and a framework has been initiated in conjunction with banks to clear the remaining backlog.
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