Nigeria’s Gross Reserves: At The Edge Of A Tipping Point?

In recent times, fresh concerns have emerged over the rate of decline in Nigeria’s foreign reserves. In Q3-19 alone, the country’s external reserves declined by $3.2bn, to settle at $41.7bn. No thanks to fresh pressure on oil prices which slowed capital inflows in the country. 

As new downward pressures emerge, the question is "to what extent will the rate of decline become alarming to monetary policy authorities?"
Earlier, a UK commercial court ruled in favor of P&ID, granting the entity the right to seize about $9.6bn in Nigerian assets. To avoid the payment of such a humongous sum, the FGN has been giving the opportunity to secure a stay of execution after filing a case of fraud, however, with a $200mn price tag. 

Elsewhere, oil prices have continued to dance to the tune of global events, currently below $60/b and threatening the possibility of a faster dollar inflow. Additionally, the CBN has continued to support the local units at the expense of the reserves.
Although the continuous decline has not reached a tipping point, a sustained decline is disturbing. Currently, Nigeria’s import cover as of Jul-19 stood at 10.2 months, lower than 15.8 months in Jan-19. 

Given the recent decline in the reserves, import cover is clearly lower, hence spurring the recent effort by the CBN to cub import of foods. However, we believe the CBN is not yet at a tipping point as the current $41.7bn reserves remains well above the 6 to 3months benchmarks recommended by the IMF and WAMZ.

-United Capital Plc