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Walle Smith Profile picture
@walesmit
Aug 27, 2019 • 6 tweets • 2 min read • Read on X
#Nigeria FX reserves have been falling off since July. As foreign capital has flowed out over August the CBN has had to actively intervene to keep the NGN in line. We already had a 'queue' issue' which CBN penned as an administrative issue. Is this a convenient coincidence?
Fundamentally despite a pickup in oil at year start, Nigeria swung into a CA deficit of over $1bn. Although some is shifting parts but our services deficit has surged again as the $ illusion is back and we are seeing ourselves as Americans again.
Worse oil is no longer the biggest driver of CBN reserve inflows. In 2018 oil accounted for 26% of CBN USD inflows (1q19: 23%) vs over 90% before 2015. Non oil flows in particular CBN purchases at the spot and swap market are now a big driver half of non-oil FX flows
Perhaps worrying is that CBN interventions now come in the form of forwards. Pre crisis CBN sales were largely spot. Post 2016 we began doing forwards less than $1b a month in 2018 over $1b a month. This is in addition to the usual swaps.
Now foreign holdings of short term securities is a number anywhere btw $10-15b or more. Next year oil pressures will resume as the glut becomes too big for more credible OPEC cuts. Are we comfortable? NGN has stayed at 360 for 3yrs now. One more year will require some adjustments
Will it be a quantity or price adjustment. I think the CBN has already told us its inclination. The restrictions on Milk, food etc are the opening line in this song. Those who've seen it before know this tune very well.

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More from @walesmit

Walle Smith Profile picture
Dec 19, 2018
Access and Diamond held a call today to discuss their combination and let's just say there are several angry minorities in both camps though one senses more on the Diamond side. Diamond dropped the bomb that they will be taking additional loan write-downs of btw 150-180b
What was strange was the excuse Uzoma put up. He says Diamond began IFRS 9 implementation and found the extra bad eggs just barely a month after filing their 9M 2018 results. If that is indeed the case the 0.3x book Access got could be more expensive once we adjust for the NPL
Uzoma also struggled to handle some of fiery questions which often saw Herbert step in to take some heat off. Basically, Diamond bank's numbers are not a fair representation of the what they've been saying for sometime. Looks much worse now.
Read 5 tweets
Walle Smith Profile picture
Oct 27, 2018
According to Nigeria's infrastructure masterplan we need to raise infrastructure stock to GDP from 25% of GDP to around 70%. Big EMs like India, China and gulf petro states were doing anywhere between 5-10% of GDP per annum. Last year helped by record borrowings we did 1.3%
I admire BRF and he is clearly in campaign mode but NO the FG cannot fund infrastructure in Nigeria. Last year's 1.3% came after pushing debt/GDP by 200bps to 16% at a high cost. nearly 70% debt service to revenue. The FG balance sheet simply cannot take us from 1-5% of GDP
Is the $$$ we need to bridge the funding gap available locally? Banking assets to GDP is 31% but only 14% is for lending to the credit starved private sector with the remainder captured by the FG as borrowings and the CBN as per monetary policy and liquidity requirements
Read 7 tweets
Walle Smith Profile picture
Sep 22, 2018
#Nigeria the Budget Office put out 2017 fiscal accounts which showed that FY deficit came in at NGN3.8tr (3.3% of nom GDP) and above the 3% fiscal responsibility act. As usual revenues missed thanks to usual over-optimistic non-oil rev assumptions and higher JV payments
But interestingly, capex spending came in a record NGN1.44tr (1.3% of GDP and around 66% of target) with overall budget execution at 87% suggesting some credibility in implementation despite the costs driven by higher drawdowns by Works, Power and Housing
Debt service/revenues printed at 69% (adjusted for sinking fund payments to retire debt 60%) but up from the 47% in 2016. Overall debt tracked higher due to increasingly more expensive borrowings over the last three years - a derivative of CBN tightening.
Read 7 tweets
Walle Smith Profile picture
Sep 5, 2018
Last week, NBS reported a soft GDP growth print of 1.5% y/y weaker than most analysts myself included expected. Main drag stemmed from oil which contracted and agriculture which grew at its slowest pace since 1987 and trade which remained in recession. Telecomms rose 11.5%
Telecomms GDP growth is strongly correlated with growth in subscriber numbers (~90%) and the key driver there was a jump in MTN subscribers (+25% y/y). If one holds the MTN number flat from June 2017, Telecomms GDP would likely have grown by 4.4% which puts Q2 2018 GDP at 0.8%
So when the CBN and the AGF start making unreasonable demands for immediate payment of $10bn from a key growth contributing non-oil company in Nigeria you wonder what is driving this kamikaze regulatory brinkmanship? CBN posture is quite irritating when you consider that in 2018
Read 7 tweets
Walle Smith Profile picture
Jul 24, 2018
CBN seems to have boxed itself into a corner. Inflation at 11.4% is below long run level of 12%. FX: you have the reserves to deal with anything even better you've converged most segments (NIFEX closed today at N349/$) GDP Growth is weak, credit growth even weaker what to do?
Cut MPR? Na we need to impress some people who interpret our policy position via MPR when in actual fact we have cut real policy rate (OMO) down to 12.15% from 18-22% in 2017. But banks are not lending? Try interventions? Banks are bogged down with IFRS 9, low CAR and NPL issues
But credit growth is now negative and cutting rates further risks putting pressure on FX. We really need to do something else growth starts to fall-off and we get into a bind to cut the MPR which we dont really want to cos we need it to impress to FPI guys.
Read 9 tweets

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