Nigeria’s external reserves, which represent the nation’s holdings of foreign currency assets, have climbed to a 22-month peak of $37.31 billion, signaling a considerable influx of foreign capital into the country’s economy, the largest in Africa.
Despite this growth, the impact on the naira remains negligible, with the currency being classified as one of the 10 worst-performing globally by Bloomberg as of September 20.
These reserves are a key indicator of Nigeria’s capacity to meet international financial commitments and support the local currency’s stability. Data from the Central Bank of Nigeria shows that, as of September 18, 2024, the reserves had reached their highest point since November 4, 2022, when they stood at $37.36 billion, reflecting a significant recovery in the country’s foreign currency reserves.
On a year-to-date basis, the reserves have surged by 12.99 percent, or $4.29 billion, from $33.02 billion at the start of the year on January 2, 2024.
Various factors have driven this increase, including the federal government’s issuance of domestic dollar bonds, which attracted foreign investors; remittance inflows from Nigerians living abroad; multilateral loans from international organizations; and foreign portfolio investments.
The head of financial institutions ratings at Agusto Consulting, Ayokunle Olubunmi, highlighted the primary role of the domestic dollar bond issuance in the reserve increase, stating, “It’s primarily the domestic bond proceeds. The uptick in diaspora remittance and portfolio investments also supported the surge.”
Compared to the same period last year, Nigeria’s foreign reserves grew by 12 percent, adding $4.03 billion to the $33.28 billion recorded on September 18, 2023.
The federal government successfully raised over $900 million from investors through the issuance of $500 million, the first series of the $2 billion domestic US dollar bond designed to bolster economic stability.
The country received $553 million in remittances over the year, between July 2023 and July 2024, as per CBN data. Additional inflows during this period include a $3.3 billion oil facility from AfreximBank and $2.25 billion from the World Bank Group.
Despite the growing reserves, the naira has continued to depreciate, falling by 49.56 percent against the dollar in the official foreign exchange market during the review period.
According to FMDQ Securities Exchange Limited, the naira plummeted from N776.60 on September 19, 2023, to N1,539.65 on September 18, 2024, in the Nigerian Autonomous Foreign Exchange Market previously known as the Investors and Exporters forex window.
The depreciation was also evident in the parallel market, where the naira fell by 41.87 percent (N695) against the dollar, dropping from N965 on September 19, 2023, to N1,660 on September 18, 2024, based on data from street traders and various online platforms.
CEO of the Centre for the Promotion of Private Enterprise, Muda Yusuf, pointed out a “serious confidence crisis in the foreign exchange market” that has led to an “unprecedented speculative onslaught on the naira.”
The CBN governor, Olayemi Cardoso, commented in February 2024 on the exchange rate volatility, attributing it to a simultaneous drop in dollar supply and a surge in demand.
He highlighted the increasing number of Nigerian students studying abroad, noting that foreign exchange demand for education and healthcare had reached nearly $40 billion over the past decade. Personal Travel Allowances have also contributed significantly, amounting to $58.7 billion over the same period, with the CBN disbursing $9.01 billion for PTAs between January and September 2019 alone.
Foreign exchange inflows into the economy surged by 57 percent year-on-year, supported by consistent CBN policies. Data from the CBN revealed that Nigeria recorded $8.86 billion in FX inflow in February 2024, up from $5.66 billion in February 2023.
The CBN’s economic report for February 2024 indicated a substantial increase in new investments, which jumped to $1.24 billion from $0.33 billion in January 2024.
Foreign direct investment (FDI) inflows rose to $0.06 billion from $0.03 billion in the previous month, while portfolio investment inflows increased to $0.80 billion from $0.12 billion, driven by higher returns on money market instruments and bonds. Other investment capital, mainly in the form of loans, rose to $0.37 billion from $0.18 billion over the same period.
A report by FBNQuest highlighted an upward trend in the international reserves of both Egypt and South Africa, two countries it monitors. Egypt’s reserves increased by $108 million month-on-month to approximately $46.6 billion in August, while South Africa’s external liquidity position saw a significant rise of $976 million month-on-month to $60.1 billion.
“Looking ahead, we expect proceeds from the recent auction of foreign currency-denominated bonds to result in much-needed FX liquidity into the economy, providing support for the naira in the near-term,” FBNQuest noted. However, the firm emphasized that addressing security challenges in the oil sector and boosting crude oil production remain critical for sustaining long-term foreign exchange gains and supporting Nigeria’s external reserves.
In a bid to further bolster the reserves, the Federal Government is set to secure a new loan from the World Bank, with an anticipated approval for $1.7 billion in loans expected on September 26, 2024. This move is likely to enhance foreign inflows into Nigeria, potentially strengthening the nation’s economic position.
