How Nigeria's FX reserves surged to a 22-month high

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The Nigerian foreign exchange reserves have surged to a new high since President Bola Tinubu assumed office
Data from the Central Bank of Nigeria shows that the country’s external reserves now stand at $37.31 billion
The record is a 22-month high since 2022, when the FX reserves hit $37.36 billion

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.

Nigeria’s external reserves have hit a 22-month high of $37.31 billion, showing significant FX inflows into the country’s coffers.

However, the inflows have failed to positively affect the naira, which became one of the worst-performing currencies in the world, according to a recent Bloomberg ranking as of September 20, 2024.

Reserves are at a 22-month peak

The reserves measure Nigeria’s ability to meet international financial obligations and stabilise the naira.

Data from the Central Bank of Nigeria (CBN) shows that as of September 18, 2024, the country’s reserves hit the highest level since November 4, 2024, when they recorded a $37.36 billion increase.

The recent rise marks a notable recovery in Nigeria’s forex position.

Yearly, Nigeria’s reserves surged by 12.99%, or $4.29 billion, from the $33.02 billion it recorded at the beginning of the year.

Factors responsible for the rise in reserves.

Essential sources of inflows include Nigeria’s recently issued domestic dollar bonds, remittance inflows from diaspora Nigerians, multilateral loans, international organisations, and foreign portfolio investments.

Nigeria’s FX reserves grew by 12% relative to yearly inflows, adding about $4.03 billion to the $33.28 billion recorded on September 18, 2023.

The Nigerian government raised over $900 million from investors via the issuance of $500 million, the first in the series of the $2 billion domestic dollar bond aimed at strengthening the economy.

Data from CBN shows that the country also recorded about $553 million in remittances in one year between July 2023 and July 2024.

Other inflows into the country’s coffers within the period include a $3.3 billion Afreximbank oil facility and a $2.25 billion loan from the World Bank.

The naira depreciates in official and parallel markets

Analysts say the increase in external reserves has not resulted in naira appreciation.

According to them, despite the growing reserves, the naira fell by 49.56% to the dollar in the official forex window during the review period.

FMDQ data shows that the naira declined from N776.60 on September 19, 2023, to N1,539.65 per dollar on September 18, 2024, in the official window.

In the parallel market, the naira also lost 41.87% to the dollar, depreciating from N965 on September 19, 2023, to N1,660 as of September 18, 2024.

Economist and senior banker Janet Ogo told Legit.ng that the correlation between the naira’s depreciation and FX inflows is different as the government is conscious of keeping the naira devalued.

“This is a policy thing. The government has no plans to keep the naira below N1,000 per dollar. Those who are wishing so are just daydreaming.“The devaluation is a conscious and intentional thing by the government to woo investors. Whether or not that policy is effective is another day’s topic,” she said.

CBN reports rising dollar demands

The CBN governor, Olayemi Cardoso, revealed in February 2024 that the FX rate in Nigeria has fluctuated due to two factors, including a decline in dollar supply coinciding with a rise in demand.

According to the CBN boss, Personal Travel Allowances (PTAs) totalled $58.7 billion in the same period.

He said between January and September 2019, the apex bank disbursed 9.01 billion to Nigerians needing PTAs.