Nigeria has recently witnessed a substantial improvement in its foreign reserves, recording a remarkable monthly net inflow of $2.35 billion over the first seven months of 2024.
This boost was announced by Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, during the Access Bank Corporate Forum in Lagos. The steady increase in foreign reserves has significantly stabilized the naira in the foreign exchange market, contributing to an enhanced economic outlook for the country.
Edun highlighted that the monthly inflow into the Central Bank of Nigeria’s (CBN) foreign reserves has provided much-needed liquidity in the forex market. This development is seen as a major factor in the gradual elimination of multiple exchange rates, which has plagued Nigeria’s economy in the past.
The increased foreign exchange liquidity is also expected to build investor confidence, bolstering foreign investments in the country.
Economic Reforms and Revenue Growth
Alongside the boost in foreign reserves, the government has introduced several fiscal reforms aimed at growing the country’s revenue base.
Edun pointed out that while Nigeria’s tax-to-GDP ratio remains low at 10%, there have been positive strides in government revenues. However, the government’s focus remains on key infrastructure and social safety net spending to support long-term economic growth.
The minister also emphasized that Nigeria’s oil production target of 2 million barrels per day (bpd) is on track to be achieved before the end of 2024. This increase in crude oil production is expected to further stabilize fiscal revenues, providing additional buffers for the country’s economy.
In addition to oil, Edun mentioned the importance of export diversification, particularly in the services sector, which has shown potential due to Nigeria’s skilled workforce.
Impact on Nigeria’s Foreign Reserves
The consistent net inflow of $2.35 billion per month into the CBN’s reserves has bolstered the country’s gross reserves, which stood at $34.66 billion by June 2024. This growth is partly driven by the rising interest rates and the devaluation of the naira, which have attracted foreign portfolio investments into the country.
The improved reserves are essential for providing a cushion against external shocks and supporting currency stability in a global market where volatility remains a significant challenge.
As of September 2024, remittances into Nigeria have surged by 130%, reaching $553 million in July alone. This increase in remittances has further strengthened the foreign reserves, supporting the naira and reducing the impact of external debt obligations.
The rise in Nigeria’s foreign reserves and the improved liquidity in the foreign exchange market come at a crucial time for the country’s economic growth. By stabilizing the naira, boosting investor confidence, and pursuing fiscal reforms, Nigeria is better positioned to overcome the challenges posed by a global economic slowdown and high inflation rates.
This continuous inflow of foreign exchange and the ongoing efforts by the government to diversify exports and increase oil production signal a positive outlook for Nigeria’s economic recovery.
