The International Monetary Fund (IMF) has unveiled a forecast, Nigeria is bracing for a significant decline in its foreign reserves, expected to plummet to $24 billion by the year 2024.
The IMF’s latest Nigeria country report has sounded the alarm, indicating potential economic hurdles ahead for Africa’s largest economy.
As of February 8, 2024, data released by the Central Bank of Nigeria (CBN) revealed the country’s foreign reserves stood at $33.12 billion. However, projections from the IMF suggest a notable downturn looms on the horizon.
The report highlighted a surplus in Nigeria’s current account during the first half of 2023. However, this period also witnessed a concerning decline in reserves, attributed to a decrease in hydrocarbon exports exacerbated by rampant theft and inadequate investment in vital upstream infrastructure.
Furthermore, profit repatriation from the oil sector has seen a downturn, albeit partially offsetting the adverse effects on the current account.
Looking ahead to 2024–25, the IMF anticipates a challenging period for Nigeria’s financial account. The absence of new Eurobond issuances, coupled with significant repayments of existing funds and Eurobonds totaling $3.5 billion, alongside continued portfolio outflows, is expected to exacerbate the situation.
Despite projections of a current account surplus, officially reported reserves are forecasted to decline to $24 billion in 2024. However, a potential recovery to $38 billion by 2028 is anticipated, driven by expected portfolio inflows resumption.
The IMF underscored the importance of effectively managing Nigeria’s external financial obligations, emphasizing the successful rollover of all maturing forwards and swaps as crucial to securing and expanding the country’s foreign reserves in the coming years.
This forecast arrives amidst challenges with foreign exchange illiquidity, adversely affecting Nigeria’s ability to clear its forex backlog and further depreciating the value of the Nigerian currency, denting foreign investment confidence.
In response, the Central Bank of Nigeria (CBN) has initiated measures to address the forex backlog, with significant outstanding balances yet to be cleared. Moreover, recent reforms by the CBN have injected over $1 billion in liquidity into the foreign exchange market, indicating a positive shift and signaling gradual improvement in the forex landscape.
These ongoing reforms in both the forex market and the oil sector are deemed critical for enhancing Nigeria’s attractiveness to foreign investors, bolstering foreign capital inflow, and fortifying the country’s foreign reserves essential for economic stability and growth.
Credit: Nairametrics
