Nigeria, Egypt and South Africa have recorded an increase in their gross official reserves with the two topping Nigeria in June 2024.
Nigeria’s reserves rose by $858 million month-on-month (m-o-m) to $33.6 billion as of June 19, 2024, according to the latest data from the Central Bank of Nigeria (CBN).
On a year-to-date (YTD) basis, the reserves also increased by $666 million.
The rise in June marks a reversal from the downward trend observed over the first five months of 2024, when the reserves declined by $322 million.
FBNQuest Capital, in a note to clients, noted that this implies an average monthly depletion rate of $64.4 million, primarily due to demand pressure and the CBN’s clearing of foreign exchange (FX) backlogs.
The latest resurgence in the reserves can be attributed to the $925 million disbursement by the African Export-Import Bank under a $3.3 billion syndicated crude oil-backed prepayment facility backed by the Nigerian National Petroleum Company Limited.
About $1.5 billion is reportedly spent monthly to defend the Naira against other trade currencies, FBNQUEST stated.
The external reserve, primarily composed of US dollars (71.5 percent as of Q4 2023), Chinese renminbi, IMF special drawing rights and smaller amounts in other currencies such as the Euro, is tied up in currency swap agreements.
“Furthermore, as of the end of May 2024, the total reserves could cover just about 1.7 months of merchandise imports based on the balance of payments for the three months to March 2024.
“Nigeria’s reserve position still falls behind its peers, South Africa and Egypt, whose external reserve positions also saw m-o-m improvements.
“South Africa’s international liquidity position, which comprises its gross reserves, gold reserves and forward positions, increased m-o-m by $44 million to $58.3 billion. The m-o-m rise can be attributed to higher gold prices, foreign currency valuation adjustments and asset price fluctuations,” it stated.
Similarly, Egypt’s external reserves substantially increased by $5.1 billion to $46.1 billion.
In May 2024, Egypt received $14 billion from the United Arab Emirates (UAE) as the second installment of the Ras El Hekma deal.
Additionally, the UAE will convert a $6 billion deposit at the Central Bank of Egypt into Egyptian pounds under the agreement.
According to the company, the outlook for Nigeria’s external reserves is cautious, with the International Monetary Fund (IMF) projecting a drop to $24 billion by the end of 2024.
“Looking ahead, we expect the government’s recent economic reforms and international engagements to result in a much-needed FX liquidity inflow to the country,” it stated.