Eurobond, IMF, drive sharp rise in FX inflows to Nigeria – FBNQuest
Total foreign exchange (FX) inflow into the Nigerian economy increased sharply to $30.2 billion in the third quarter (Q3) 2021 from $18.4bn in the preceding quarter, according to the data from the Central Bank of Nigeria (CBN) statistical bulletin.
The sharp rise in inflows into the economy was mostly due to a 158 percent q/q (141percent y/y) increase in inflow through the CBN to USD16.8bn, analysts at FBNQuest said in a new note Friday.
The rise in FX flows through the CBN reflect the IMF’s $3.3bn special drawing right (SDR) allocation to Nigeria, as well as proceeds of USD4bn from Nigeria’s Eurobond issue, both of which occurred in August and September ’21 respectively.
Total forex inflows were also up by +14percent y/y. The FX inflow in Q3 is the highest quarterly inflow since Q1 ‘20 when the economy recorded robust inflows of $42.5bn, and it is roughly equivalent to the inflow in Q3 ’19, prior to the emergence of the pandemic.
The analysts noted that the FX inflow through the CBN accounted for about 56 percent of aggregate inflows in the economy.
Like Nigeria, a number of emerging and frontier market economies tapped the international debt markets last year, thanks to the accommodative policies of developed countries’ central banks. Within Africa, Egypt, Ghana and Kenya, to name a few, successfully issued Eurobonds in FY ’21. Notably, Egypt tapped the market twice for a combined sum of $6.8bn.
FX inflows from autonomous sources were up 12 percent q/q to $13.3bn, with over 91 percent of the value from invisibles such as over-the-counter sales of securities, and domiciliary accounts.
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Total FX outflows from the economy increased to USD10.2bn from $9.8bn in Q2 ’21. The CBN continued to be the most important source of FX for outbound transactions, accounting for about USD8.0bn of transaction value, down from $8.9bn in Q2.
The CBN’s various interventions and allocation of fx through its various windows fell by c.10percent q/q to $4.5bn. The reduction can be attributed in part to the bank’s decision to stop selling FX to Bureau de Change (BDC) operators last year.
Fx sales to the BDC segment plummeted to $445m, reflecting fx sales for July when the CBN halted sales to the segment.
Sales for the secondary market intervention sales (SMIS) segment improved to USD2.1bn from USD1.5bn in the second quarter (Q2).
The CBN on July 27, 2021 after the Monetary Policy Committee (MPC) meeting to discontinue the sale of foreign exchange to the BDCs due to forex infractions.
The CBN also directed banks to sell dollars for legitimate needs of the end users. Such legitimate needs include Personal Travel Allowance (PTA), Business Travel Allowance (BTA), school fees and medicals.
