Nigeria’s Foreign Reserves Increase by 22% in 11-Month
Amid reforms, Nigeria has seen a sharp rise in foreign reserves over the last 11 months as investor confidence increased.
Inflows from foreign investors and remittances from abroad keep the gross balance of external reserves elevated, even as a series of oil-backed deals reduced FX receipts from exports.
By the end of November 2024, Nigeria’s reserves had appreciated by an impressive 21.90% year-on-year, climbing from $33 billion in November 2023 to $40.23 billion. Cowry Asset Limited said in an update.
Analysts said the current balance, up about $7.23 billion, represents the highest level since February 2022, bolstered by substantial foreign capital inflows driven by robust carry trade opportunities arising from the CBN’s tight monetary policy stance.
Nigeria’s foreign exchange reserves surged 22.24% between January and November, Central Bank data showed. At the start of the year, reserves stood at a relatively strong $33.02 billion, supported by moderate oil prices and the CBN’s deliberate efforts to stabilise the foreign exchange market.
The Apex Bank defended the local currency minimally, as expected given the external reserves position. But the mood to defend the naira was weak as the CBN continues to search for alternative ways and means to increase transparency in the forex market.
“With the CBN’s body language, you will see that the monetary authority doesn’t trust Nigerian banks – for the record, Nigerian banks destroyed the naira with some sort of arbitrage and speculative activities”, an expert who preferred not to be quoted said.
Favourable oil market conditions, particularly for Bonny Light crude, sustained the growth in reserves, with prices frequently exceeding $80 per barrel, Cowry Asset Limited noted.
The economy benefitted from increased foreign portfolio investments, reflecting renewed investor interest in Nigeria’s financial markets.
Analysts said that despite these gains, the foreign exchange market faced persistent pressure, as the naira struggled under heavy demand for dollars from diverse segments of the economy.
Surging demand for US dollars and other foreign currencies placed significant strain on reserves, particularly as the year progressed.
Global oil price volatility emerged as a key challenge, impacting Nigeria’s export revenues, according to Cowry Asset macro note.
“While oil production showed periods of recovery, structural challenges such as crude oil theft and operational inefficiencies hindered the steady flow of revenues
On the domestic front, the removal of petrol subsidies, a critical fiscal reform, introduced initial inflationary pressures, which temporarily discouraged foreign capital inflows”.
Analysts believe the persistent depreciation of the naira against major currencies increased demand for foreign exchange, prompting the CBN to intervene in the market to meet critical import needs, particularly for essential commodities such as fuel and food.
“These interventions, while necessary, placed additional pressure on reserves. By November 2024, reserves covered 11.8 months of merchandise imports based on the balance of payments for the 12 months to June 2024.
“When imported services were included, the coverage extended to 8.3 months, which marked an improvement over the average of 9 months for merchandise import cover in 2023.
“These figures reflect a relatively favourable position, underscoring the resilience of Nigeria’s external reserves amidst persistent challenges”, Cowry Asset Limited explained.
Analysts said the decline in foreign direct investment and portfolio inflows, however, remained a concern, largely due to economic uncertainties and structural inefficiencies.
To address these issues, the government launched initiatives such as issuing dollar-denominated bonds and implementing policies to attract foreign investment.
“While these measures achieved limited success, they underscored the importance of addressing broader structural issues and enhancing the business environment to sustain inflows”.
As the year drew to a close, cautious optimism emerged. Recovering oil prices, combined with the gradual impact of fiscal reforms, began to lift investor sentiment.
However, analysts said sustaining this momentum requires sustained policy efforts to diversify exports, improve oil production efficiency, and rebuild investor confidence.
Looking ahead, expectations are for continued growth in Nigeria’s foreign exchange reserves, supported by higher foreign portfolio inflows driven by the CBN’s hawkish monetary policy stance and a favourable real interest rate differential relative to advanced economies.
These dynamics offer a path to further stabilising reserves, but long-term resilience will depend on a holistic approach to economic reforms and diversification, Cowry Asset Limited said. #Nigeria’s Foreign Reserves Increase by 22% in 11-Month#
