FBNQuest: External Reserves To Keep Hovering At $40bn

Citing the country’s repayment of external debt obligations and the Central Bank of Nigeria’s (CBN) intentional interventions in the foreign exchange market to meet rising forex demand, FBNQuest has predicted the country’s external reserves will continue to hover at $40 billion.

The firm stated this while commenting on the external reserves level as at the end of January this year as published by the CBN.

Although FBNQuest noted that it was difficult to identify the primary cause for the significant drop in the external reserves last month, the firm said it believes the “substantial dip was primarily driven by USD debt-service payments made on behalf of the FG, which typically peak in the year’s first quarter.”

It said: “Data from the Central Bank of Nigeria (CBN) shows that Nigeria’s gross official reserves decreased by almost -$1.2 billion month-on-month (MoM) to $39.7 billion as of end-January 2025.

The decrease in January is significant, as it marks the sharpest attrition in the reserves position since April 2024, when it plummeted by $1.6 billion. In addition, it brings an end to the MoM consecutive increase that began in October 2024.

The nation’s gross reserves are equivalent to 9.9 months of merchandise imports and 8.2 months when we include services.

“Identifying the primary cause for the diminishing position of the nation’s reserves is quite difficult because the comments from the CBN are often delayed.

“However, we believe that the substantial dip was primarily driven by USD debt-service payments made on behalf of the FG, which typically peak in the year’s first quarter.

“Another additional factor could be the CBN’s intermittent interventions to improve market liquidity in the FX market.

Consequently, the naira currency gained traction, appreciating by +4.3 per cent MoM in January to N1,474.78/US$, reflecting ample FX market liquidity.”

Continuing, the firm said: “In contrast to Nigeria, official reserves for South Africa and Egypt, the other markets we track in Africa, increased during the review month.

“Specifically, South Africa’s international liquidity position increased by $1.0 billion MoM to $61.3 billion, primarily driven by a rise in gold prices and valuation adjustments.

“On the other hand, Egypt’s foreign exchange reserves maintained their upward trend, increasing by a smaller $156 million MoM to $47.3 billion.