The International Monetary Fund has predicted that Nigeria’s foreign reserve is expected to decrease significantly, falling to $24 billion in 2024.
“Through 2024–25, the financial account is likely to deteriorate, with no projected issuance of Eurobonds, large Fund and Eurobond repayments of $3.5 billion, and portfolio outflows,” IMF stated in its report.
The IMF’s latest country report for Nigeria has detailed a prediction that suggests potential challenges lie ahead for Africa’s largest economy. As of February 8, 2024, data from the Central Bank of Nigeria indicated that the country’s foreign reserves stood at $33.12 billion, prompting concerns of a substantial drop in the near future as per the international financial institution’s projections.
The IMF observed a surplus in Nigeria’s current account during the first half of 2023; however, it highlighted a noticeable decline in reserves during the same period. This dip is attributed to a reduction in hydrocarbon exports, driven by widespread theft and insufficient investment in critical upstream infrastructure.
Furthermore, profit repatriation from the oil sector has experienced a decline, somewhat mitigating the adverse effects on the current account.
Against this backdrop, Foreign Direct Investment remains low, and there has been an increase in portfolio outflows, encompassing equity and Eurobond repayments, as well as repatriations.
The IMF foresees a challenging period for Nigeria’s financial account through 2024–25, exacerbated by the absence of new Eurobond issuances, significant repayments totaling $3.5 billion for existing funds and Eurobonds, and sustained portfolio outflows.
Despite projecting a current account surplus, officially reported reserves are expected to dwindle to $24 billion in 2024, with a potential recovery to $38 billion by 2028 as portfolio inflows are predicted to resume.
Nigeria grapples with considerable challenges related to foreign exchange illiquidity, impacting its ability to clear forex backlogs and further devaluing the national currency. This forex scarcity hinders the nation’s capacity to meet foreign exchange obligations, leading to declining confidence among foreign investors.
In response to these challenges, the Central Bank of Nigeria has initiated measures to address the backlog of foreign exchange forwards, with an outstanding balance of $2.2 billion yet to be cleared.