Nigeria’s external reserves have grown again, now at $34.66 billion as of July 4, 2024. This is a 13-month high.
This information comes from Newslodge’ historical records of the central bank’s external reserve data for the last year.
The reserves are at their highest since the foreign exchange unification policy began in June 2023.
The increase in reserves is due to financial commitments from Afrexim Bank and the World Bank through loans, and various FX reforms by the CBN.
What the Data is Saying
On June 14, 2023, the Central Bank of Nigeria (CBN) started a plan to join all segments of the foreign exchange market into one system.
This move aimed to make the Nigerian FX market stable and liquid. But it also caused the naira’s value to fall quickly.
When the CBN started this FX unification policy, Nigeria’s external reserves were $34.66 billion. From July to December 2023, these reserves stayed around $33 billion.
As of July 4, 2024, the reserves hit $34.66 billion, the highest in more than a year.
This is just short of the $34.69 billion mark achieved on June 13, 2023, before the government unified the exchange rate.
Nigeria has seen a rise in exchange rates in recent weeks, ending June above $34 billion for the first time since April. The reserves have kept growing in July, reaching their highest in the last year.
Earlier Challenges
The central bank Governor explained the earlier decline in reserves at the last IMF Spring meeting. He said the drop was due to debt repayments and other financial obligations, not because of efforts to defend the naira’s value.
Since then, the reserves have been rising steadily, matching a period of exchange rate stability, reaching $34.66 billion on July 4, 2024.
In the past month, the reserves increased by 6% from $32.78 billion recorded last month.
Policies Driving Reserve Growth
Newslodge noted that at the end of 2023, global forex reserves were $12.3 trillion, but Nigeria’s forex reserves dropped to $32.3 billion, representing just 0.26% of global reserves, down from 0.36% in 2022. This was mainly due to fewer forex inflows and more outflows.
The recent rise in FX reserves started in May, after three months of ups and downs, hitting a low of $32.11 billion on April 19, 2024.
This earlier dip was likely due to increased import demands, payment obligations, or reduced foreign inflows during that time.
The latest data from the National Bureau of Statistics show Nigeria received $3.9 billion in the first quarter of the year. Most of these inflows went into government debt securities like treasury bills, OMO bills, and bonds.
What You Should Know
The Monetary Policy Committee (MPC) recently asked the CBN to work on increasing the external reserves.
To ensure a steady flow of foreign exchange, the CBN plans to double the diaspora remittance inflow this year.
Afrexim Bank announced they have disbursed another $925 million, part of a $3.3 billion crude oil-backed loan agreement with the NNPC. The total payment for the facility now stands at $3.175 billion. This loan should help stabilize the forex market amidst volatility.
The World Bank also approved $2.25 billion in loans to Nigeria to boost economic stability and help vulnerable populations. This money aims to provide immediate support for Nigeria’s urgent economic needs.
Despite the increase in reserves and financial support, Fitch noted that the lack of clarity over Nigeria’s FX reserves size and composition remains a significant constraint on the nation’s credit profile.