Nigeria’s external reserves have surged to a 22-month high of $37.31 billion, marking a significant inflow of foreign currency into the nation’s economy.
Data from the Central Bank of Nigeria (CBN) shows that as of September 18, 2024, the reserves reached their highest level since November 4, 2022, when they stood at $37.36 billion. This notable recovery is seen as a positive shift in Nigeria’s foreign currency position.
External reserves, which represent the country’s stockpile of foreign currency holdings, are a key measure of a nation’s ability to meet international financial obligations and support its currency. Despite the recent increase, the reserves have had little effect in stemming the decline of the naira.
As of September 20, 2024, Bloomberg had ranked the naira as one of the ten worst-performing currencies globally. This persistent weakness underscores the challenges Nigeria continues to face in stabilizing its local currency, despite improving foreign exchange reserves.
On a year-to-date basis, Nigeria’s foreign reserves grew by 12.99%, reflecting a $4.29 billion increase from the $33.02 billion recorded at the start of 2024.
Several factors contributed to this rise, including foreign investment inflows through the issuance of domestic dollar bonds, remittances from Nigerians living abroad, loans from multilateral institutions, and increased foreign portfolio investments.
The federal government’s issuance of domestic US dollar bonds, which attracted over $900 million in investments, played a crucial role in bolstering reserves. Of this, $500 million was raised from the first series of the $2 billion bond program aimed at stabilizing the economy.
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In a year-over-year comparison, the external reserves expanded by 12%, or $4.03 billion, from $33.28 billion recorded in September 2023. Inflows from various sources such as the $3.3 billion AfreximBank oil facility and $2.25 billion in loans from the World Bank further strengthened Nigeria’s foreign currency position.
Additionally, remittance inflows totaled $553 million between July 2023 and July 2024, further contributing to the rising reserves.
Foreign exchange inflows into Nigeria’s economy surged by 57% within a year, largely due to consistent economic policies implemented by the CBN.
According to CBN data, FX inflows reached $8.86 billion in February 2024, significantly higher than the $5.66 billion recorded in February 2023. Investment flows also showed promising growth during this period. New investments increased significantly, with $1.24 billion entering the economy in February 2024, compared to $0.33 billion in January 2024.
Foreign direct investment (FDI) rose modestly to $0.06 billion in February 2024, from $0.03 billion in January 2024.
However, the most notable growth occurred in portfolio investments, which surged to $0.80 billion in February, up from $0.12 billion the previous month. This was largely due to rising returns on money market instruments and bonds, making Nigeria more attractive to foreign investors.
Other investment capital, including loans, also increased significantly, rising to $0.37 billion in February from $0.18 billion in January.
The sustained inflows of foreign currency into Nigeria’s economy highlight the effectiveness of certain monetary policies and strategies aimed at attracting external capital.
However, the ongoing depreciation of the naira signals that more comprehensive measures may be required to achieve long-term economic stability and curb the persistent challenges affecting the local currency.