Nigeria’s Foreign Reserves Increase by 22% in 11-Month
Amidst reforms, Nigeria has seen a strong spike in foreign reserves over the last 11 months as investors’ confidence increased. Inflows from foreign investors and remittances from abroad keep gross balance in external reserves elevated, amidst series of oil-backed deals that 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 a update.
With an increase of about $7.23 billion, the current balance in the external reserves represents the highest level seen since February 2022, analysts said, 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 by 22.24% between January and November, data from the Central Bank showed.
At the start of the year, the reserves stood at a relatively strong $33.02 billion, supported by a combination of moderate oil prices and deliberate efforts by the CBN to stabilise the foreign exchange market.
The Apex Bank defended the local currency minimally as would have expected when looking at the external reserves positions. But the mood to defend the naira was weak as the CBN continues to search for alternatives ways, means to increase transparency in the forex market.
“With the CBN 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”, expert who preferred not to be quoted said.
The growth in reserves was further sustained by favourable conditions in the oil market, particularly for Bonny Light crude, which maintained an upward trajectory, 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 despite these gains, the foreign exchange market faced persistent pressures, as the naira struggled under the weight of high demand for dollars from diverse segments of the economy.
It is note that surging demand for US dollar 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 that the persistent depreciation of the naira against major currencies exacerbated demand for foreign exchange, compelling 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, the reserves provided coverage for 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 stated that the decline in foreign direct investment and portfolio inflows, however, remained a concern, attributed largely to economic uncertainties and structural inefficiencies.
To mitigate these issues, the government launched initiatives such as issuing dollar-denominated bonds and implementing policies aimed at attracting 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 confidence among investors.
Looking ahead, expectations are for a continued rise in Nigeria’s foreign exchange reserves, primarily supported by higher foreign portfolio inflows driven by the CBN’s hawkish monetary policy stance and the favourable real interest rate differential relative to advanced economies.
These dynamics offer a path to stabilising the reserves further, but achieving 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#
