Nigeria’s external reserves have surged to $34.66 billion as of July 4, 2024, marking the highest level in over a year. This significant increase of $1.88 billion from June is the result of various financial and policy actions aimed at stabilizing the country’s economy.
According to historical records from Nairametrics, this level of reserves is the highest since the Central Bank of Nigeria (CBN) introduced its foreign exchange (FX) unification policy in June 2023. The external reserves were at $34.66 billion on the day the FX unification was announced, and the recent increase brings the reserves back to this high level.
“The recent growth in reserves demonstrates the positive impact of our new policies and financial commitments,” said a CBN spokesperson.
Impact of the FX Unification Policy
On June 14, 2023, the CBN merged different segments of the FX market into a single, unified system. This policy aimed to improve liquidity and stability in the FX market. However, it also led to increased market volatility and a decline in the value of the naira. During the second half of 2023, the reserves fluctuated around $33 billion. But as of July 2024, the reserves have rebounded to a 13-month high, showing a 6% increase from $32.78 billion in June 2024.
Financial Commitments Driving Growth
Several factors have contributed to this surge in reserves. The CBN introduced new FX reforms and received substantial financial support from international institutions. The African Export-Import Bank (Afrexim Bank) disbursed $925 million as part of a $3.3 billion loan agreement with the Nigerian National Petroleum Corporation (NNPC). This loan is expected to help stabilize the FX market.
“This latest disbursement brings the total payment for the facility to $3.175 billion, helping to support the Nigerian economy,” Afrexim Bank announced.
In addition, the World Bank approved $2.25 billion in loans to Nigeria for economic stability and support for vulnerable populations.
The World Bank stated, “This financial support aims to provide immediate assistance for Nigeria’s economic stabilization efforts.”
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Past Challenges and Recent Successes
Earlier in the year, CBN Governor Godwin Emefiele addressed the decline in reserves at the IMF Spring meeting. He explained that the drop was mainly due to debt repayments and financial obligations rather than attempts to defend the naira’s value. However, since then, there has been a steady increase in reserves.
Emefiele noted, “The recent rise in reserves shows that our strategies are beginning to work and that the FX market is stabilizing.”
Current and Future Outlook
The rise in reserves follows a period of fluctuations and challenges. From a low of $32.11 billion in April 2024, the reserves have grown consistently. Nairametrics data shows that Nigeria’s external reserves had not reached this level since June 13, 2023, just before the FX policy changes.
The CBN plans to continue boosting the reserves through various measures. The Monetary Policy Committee (MPC) has urged the CBN to focus on increasing external reserves. One of the strategies includes doubling the inflow of remittances from Nigerians abroad.
Continued Efforts for Stability
The recent improvements in reserves are also attributed to increased capital inflows. The National Bureau of Statistics reported that Nigeria received $3.9 billion in capital importation during the first quarter of 2024, mostly for government debt securities.
Despite these positive developments, there are still concerns. Fitch Ratings pointed out that uncertainty over the exact size and composition of Nigeria’s FX reserves remains a challenge for the country’s credit profile.
“While the increase in reserves is encouraging, there is still a need for greater transparency and clarity in the management of these reserves,” Fitch noted.