Nigeria’s external reserves have surged to a 22-month peak of $37.31 billion, reflecting a significant influx of foreign capital into Africa’s largest economy.
This growth, however, has not translated into improvements for the naira, which has been classified as one of the ten worst-performing currencies globally by Bloomberg as of September 20.
According to the Central Bank of Nigeria, the reserves reached their highest level since November 2022, when they stood at $37.36 billion. Year-to-date, reserves have increased by 12.99%, adding $4.29 billion from the beginning of the year.
Several factors have contributed to this rise, including the federal government’s issuance of domestic dollar bonds, which attracted foreign investors, remittance inflows from Nigerians abroad, multilateral loans, and foreign portfolio investments. Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, emphasized that domestic bond proceeds were the primary driver of this increase, with diaspora remittances and portfolio investments also playing a supportive role.
Compared to September 2023, Nigeria’s foreign reserves have grown by 12%, increasing by $4.03 billion from $33.28 billion. The federal government successfully raised over $900 million from investors through the issuance of the first $500 million of a planned $2 billion domestic US dollar bond aimed at strengthening economic stability.
Despite this boost in reserves, the naira has continued to depreciate, falling by 49.56% against the dollar in the official foreign exchange market. Data from FMDQ Securities Exchange Limited indicates that the naira dropped from N776.60 on September 19, 2023, to N1,539.65 on September 18, 2024.
The parallel market mirrored this decline, with the naira falling by 41.87% (N695), dropping from N965 to N1,660 in the same timeframe. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, pointed to a “serious confidence crisis in the foreign exchange market,” leading to unprecedented speculation against the naira.
CBN Governor Olayemi Cardoso noted in February 2024 that the volatility in exchange rates was due to a simultaneous decline in dollar supply and an increase in demand. He highlighted the rising number of Nigerian students studying abroad, which has driven demand for foreign exchange for education and healthcare, totaling nearly $40 billion over the past decade.
Foreign exchange inflows into Nigeria surged by 57% year-on-year, with $8.86 billion recorded in February 2024, up from $5.66 billion in February 2023. The CBN’s February economic report indicated a substantial increase in new investments, jumping to $1.24 billion from $0.33 billion in January 2024.
A report by FBNQuest noted upward trends in the international reserves of Egypt and South Africa, with Egypt’s reserves rising to approximately $46.6 billion and South Africa’s reaching $60.1 billion in August.
Looking ahead, FBNQuest expects proceeds from recent foreign currency-denominated bond auctions to provide much-needed liquidity to the economy and support the naira in the short term. However, addressing security challenges in the oil sector and boosting crude oil production will be crucial for sustaining long-term foreign exchange gains.
In a move to further enhance reserves, the Federal Government is set to secure a new loan from the World Bank, with an anticipated approval of $1.7 billion expected on September 26, 2024. This loan is likely to bolster foreign inflows into Nigeria, strengthening the nation’s economic position.
