Nigeria’s Official Market Faces Five-Month Low in Dollar Liquidity for June 2024

In June 2024, the Nigerian Autonomous Foreign Exchange Market (NAFEM) had one of its lowest foreign exchange (FX) turnovers in five months. This means there was less trading of dollars, and it made things tough for Nigeria’s currency, the naira.

As of June 27th, 2024, the total amount of dollars traded was $3.14 billion. This is a big drop from the $4.61 billion that was traded the previous month.

Every day in June, the market traded an average of $196.46 million. Compared to May, which was $209.39 million per day, this is about a 6.2% decrease in trading.

This information comes from Nairalytics, a research partner of Newslodge, using data from FMDQ, a financial market data company.

For the past two weeks, the naira has been losing value against the US dollar, reaching its lowest point at N1,510.1 per dollar. On average, in June, the naira traded at N1,486.63 per dollar, compared to N1,435.87 per dollar in May and N1,244.66 per dollar in April 2024.

Even with efforts from the Central Bank of Nigeria (CBN) to stabilize the market, the naira keeps losing value, showing the difficulties Nigeria faces in its economy.

From January to June 2024, the CBN raised the Monetary Policy Rate (MPR) by 750 basis points. The goal was to tackle rising inflation and attract foreign investors. The rates for government bonds and treasury bills went up, which means they pay more money to investors.

However, there is still a problem with FX liquidity, meaning there are not enough dollars available for people who need them. This causes the value of the naira to keep dropping.

Looking at investments in Nigerian stocks, foreign investors put N190.82 billion into Nigerian stocks from January to May 2024. On the other hand, N267.47 billion was taken out by these investors, leaving a net deficit of N76.65 billion. This means more money is leaving Nigeria than coming in.

Rising FX outflows

Despite not having enough dollars, Nigeria spent a lot on international payments between January and May this year. They spent over $3.31 billion, a 31% increase from the same period in 2023.

• For visible goods, such as imported items, they used $279.99 million.
• Direct remittances, or sending money abroad for personal or business purposes, used $841.37 million.
• The biggest part, $2.19 billion, went to debt servicing and payments.

Even with these high expenses, Nigeria’s foreign reserves went up to $34.07 billion by June 26, 2024, from $32.69 billion at the beginning of the month. This could be due to the CBN reducing its intervention in the FX market and increased earnings from exports, especially crude oil.

The CBN’s strategy of reducing interventions has helped build up reserves, reflecting a careful approach to managing the country’s foreign exchange. Higher oil production also boosted export revenues, helping to increase reserves.

Having higher reserves can help protect the economy from shocks and make investors more confident in Nigeria’s financial stability. However, to keep this positive trend, Nigeria needs to keep boosting export earnings, diversify the economy, and maintain careful FX management policies.