According to the latest country report by the International Monetary Fund (IMF), Nigeria’s foreign reserves are projected to decrease to $24 billion by 2024.
This significant drop in reserves may pose forex challenges for Africa’s largest economy. As of February 8, the country’s external reserves stood at $33.12 billion.
The IMF anticipates a challenging period for Nigeria’s financial account until 2024-2025, exacerbated by the absence of new Eurobond issuances, significant repayments of existing funds and Eurobonds totaling $3.5 billion, and continued portfolio outflows.
Despite projecting a current account surplus, the reported reserves are expected to diminish to $24 billion in 2024. However, there is hope for a recovery to $38 billion by 2028 as portfolio inflows are forecasted to pick up again.
The decline in reserves can be attributed to a decrease in crude oil exports, primarily due to oil theft and a lack of investment in essential upstream infrastructure. Profit repatriation from the oil sector has also dipped, partially offsetting the adverse effects on the current account.
Additionally, Foreign Direct Investment in the country remains low, while there has been an increase in portfolio outflows, including equity and Eurobond repayments as well as repatriations. The IMF report highlights that the Central Bank of Nigeria reported a decline in gross international reserves to $33 billion in October, covering six months of imports and 83 percent of the IMF’s Adequate Reserve Assessment (ARA).
“Following the IMF’s definition of GIR, $8bn in securities are considered pledged collateral that are thus not readily available, reducing GIR under the IMF’s definition to $25bn at end-October 2023.
“The authorities have not shared full information on short-term FX liabilities which would be necessary to calculate net international reserves. Through 2024–25, the financial account is likely to deteriorate, with no projected issuance of Eurobonds, large Fund and Eurobond repayments of $3.5 billion, and portfolio outflows.”
The IMF also claimed that the Nigerian authorities had yet to disclose comprehensive information on short-term foreign exchange liabilities, which are crucial for calculating the net international reserves accurately.
The fund recently said stalled per-capita growth, poverty and high food insecurity had exacerbated the ongoing cost-of-living crisis in Nigeria.
According to the IMF, low revenue collection has hampered the provision of services and public investment.
It noted that headline inflation reached 27 per cent year-on-year in October (food inflation 32 per cent), reflecting the effects of fuel subsidy removal, exchange rate depreciation, and poor agricultural production in the country.
