Forex Inflows Still Below Pre-COVID Levels – Analysts

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The Central Bank of Nigeria (CBN), in its quarterly statistical bulletin for fourth quarter of 2020, said the total Foreign Exchange (FX) inflows into the Nigerian economy declined by -6.4 per cent quarter-on-quarter (q/q) (-42% y/y) to $24.8 billion.

Although the aggregate inflows have increased since they bottomed out to a 3-year low at the height of the pandemic, they have not recovered to pre-COVID levels.

According to a report by the FBNQuest research team, FX inflows through the CBN increased 17.1 per cent quarter-on-quarter (q/q) to $8.2 billion (or 33% of total inflows), thanks to a 48 per cent q/q rise in non-oil receipts to $6.8 billion. A $2.0 billion category titled “others including FGN loans” underpinned the increase in non-oil receipts.

On a net basis, the CBN’s swap arrangements grew 117 per cent q/q to $792 million.

In contrast, oil receipts fell 44 per cent q/q to $1.3 billion due to Nigeria’s adherence to its OPEC oil production quota, which resulted in a decline of 0.1 million barrels per day and a decrease in NNPC’s share of oil and gas exports.

“Autonomous sources contributed $16.6 billion in forex inflows, or 67 per cent of overall inflows. It was supported by a 10 per cent increase in over the counter (OTC) purchases, which included capital imports, home remittances, and other OTC purchases which we reckon are mostly linked to bonds.

“A further breakdown of OTC purchases showed that capital imports and home remittances shrunk by 25 per cent q/q and 52 per cent q/q respectively.

“The drop in capital imports can be attributed to Foreign Portfolio Investors (FPIs’) waning appetite after a worsening of FX liquidity, induced by a sell-off in oil prices as the pandemic worsened. Remittances also suffered a blow from the weak economic growth and employment levels in migrant-hosting countries.

“Drawing from a different data series, we note that workers’ remittances in the balance of payments accounts which provides a more holistic view of remittances also slumped by 31 per cent q/q to c.$4 billion in Q4 ’20 and 28 per cent y/y to $17 billion in FY ’20. In an effort to boost remittances, the CBN in December 2020 directed that beneficiaries could take their remittances from licensed International Money Transfer Operators (IMTOs) in US dollars, the researchers said.

It also increased the number of authorized IMTOs. In March 2021, the bank followed this up by launching its “Naira 4 dollar scheme”.

Under the scheme, Diaspora remittance recipients are rewarded with an extra N5 for every dollar wired through official routes.

FX outflows through the economy increased by 24.1 per cent q/q to $9.2 billion. About 97 per cent of total outflows were routed through the CBN.

The strong increase in forex outflows reflects a rise in CBN FX interventions at multiple intervention windows, notably the restart of FX sales to bureaux de change operators and at the investors and exporters (I&E) window in August ‘20 after a five-month hiatus. Despite the increase in outflows during the quarter, FX outflows remain below pre-pandemic levels, due largely to the CBN’s import compression strategies.

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