Nigeria’s FX Reserves Exceed $35 Billion, a First Under Tinubu
Nigeria’s external reserves have seen a notable increase, reaching $35.05 billion as of July 8, 2024. This marks the highest level since May 30, 2023, when the reserves stood at $35.09 billion, just before the introduction of the foreign exchange (FX) unification policy in June 2023. This is the first time the reserves have crossed the $35 billion threshold under President Bola Tinubu’s administration.
The recent rise in reserves appears to be influenced by the Central Bank of Nigeria’s (CBN) FX policies and financial commitments from institutions like Afrexim Bank and the World Bank through various loan agreements. These measures seem to have played a significant role in bolstering the reserves.
Historical Context and Data Analysis
When Bola Tinubu assumed office as Nigeria’s 16th president on May 29, 2023, the country’s external reserves were approximately $35.09 billion. However, by the time the CBN announced the FX unification policy, the reserves had declined to $34.66 billion. From July to December 2023, the reserves fluctuated within the $33 billion range, reflecting a period of instability.
In 2024, the reserves experienced significant fluctuations, dropping to a low of $32.11 billion on April 19. The CBN Governor, at the last IMF Spring meeting, attributed this decline to debt repayments and other standard financial obligations rather than efforts to defend the naira. Following this low point, the reserves began a gradual and consistent upward trajectory, coinciding with a period of exchange rate stability.
By the end of June 2024, the reserves had surged past the $34 billion mark for the first time since April, continuing to rise in July and reaching the highest level in over a year. Since hitting the lowest point of $32.11 billion in April under Tinubu’s administration, the reserves have increased by $2.94 billion in less than three months.
Factors Contributing to Reserve Growth
The Monetary Policy Committee (MPC) has recently urged the CBN to focus on boosting the external reserves. To ensure a steady flow of foreign exchange into the country, the CBN plans to double the diaspora remittance inflow this year. Additionally, Afrexim Bank announced the disbursement of $925 million, part of the $3.3 billion crude oil-backed loan agreement with the Nigerian National Petroleum Corporation (NNPC) from the previous year. This disbursement brings the total payment for the facility to $3.175 billion, expected to help stabilize the forex market amid severe volatility.
The World Bank also approved $2.25 billion in loans to Nigeria to boost the country’s economic stability and support its vulnerable populations. This financial infusion aims to provide immediate financial and technical support for Nigeria’s urgent economic stabilization efforts.
Challenges and Considerations
Despite the increase in reserves and financial commitments to Nigeria, there are still challenges. Fitch has noted that the lack of clarity over the precise size and composition of Nigeria’s FX reserves remains a significant constraint on the nation’s sovereign credit profile. This lack of transparency can impact investor confidence and the country’s ability to manage its foreign exchange market effectively.
Conclusion
The recent increase in Nigeria’s external reserves to $35.05 billion reflects a positive trend influenced by CBN’s FX policies and substantial financial commitments from international institutions. However, challenges remain, particularly concerning the clarity and composition of the reserves. Continued efforts to boost reserves, improve transparency, and ensure economic stability are crucial for Nigeria’s financial health and overall economic growth.