Nigeria’s external reserves have increased by 0.29 percent year-to-date in January 2024, after Afreximbank made the initial disbursement of $2.25 billion crude oil prepayment facility.
Data from the Central Bank of Nigeria (CBN) showed that the foreign currency reserves rose to $33.113 billion as of January 12, 2024, from $33.016 billion recorded on January 2, 2024.
Analysts at CardinalStone foresee significant opportunities for enhancing foreign exchange (FX) liquidity in 2024, potentially catalysing increased foreign investments. This positive outlook is underpinned by several key factors, including the CBN’s commitment to clearing outstanding backlogs.
The recent acquisition of a $2.25 billion FX support facility from the African Export-Import Bank (AFREXIM) further reinforces this perspective. Additionally, anticipated inflows from the World Bank and proceeds from dividend securitisation from the Nigerian Liquefied Natural Gas (NLNG) contribute to the optimistic stance.
In light of the global economic landscape forecasting lower interest rates in 2024, the ongoing efforts by the CBN and private initiatives, such as the Dangote Refinery, are positioned to play a pivotal role, the analysts said.
These collective endeavours are expected to result in a boost to dollar inflows and an overall improvement in FX liquidity.
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The market’s response to these house-cleaning measures and private sector initiatives remains a focal point, with analysts anticipating positive outcomes for Nigeria’s economic landscape in the coming year.
Meanwhile, the naira gained 6.14 percent against the dollar despite a drop in liquidity at the official foreign exchange market on Monday.
Dollar flows dropped by 69.28 percent to $26.37 million on Monday from $85.85 million recorded on Friday.
After trading on Monday, naira appreciated as the dollar was quoted at N838.95 compared to N890.54 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ indicated.
The Central Bank of Nigeria underscores the critical role of foreign exchange reserves as essential assets held in foreign currencies to back liabilities and shape monetary policy. These reserves, encompassing foreign banknotes, deposits, bonds, treasury bills, and various foreign government securities, serve as a multifaceted tool with significant implications for economic stability.
According to the CBN, these reserves play a pivotal role in ensuring a robust financial foundation, acting as a safeguard in the event of rapid devaluation of the national currency. Referred to as international or external reserves, they provide a buffer for governments or their agencies, offering backup funds in times of economic uncertainty.
The International Monetary Fund (IMF) defines international reserves as external assets under the control of a country’s monetary authorities. These assets include foreign currencies, foreign currency-denominated assets, gold reserves, special drawing rights (SDRs), and IMF reserve positions.
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The IMF highlights their versatility, indicating that these reserves can be utilised for direct financing of international payment imbalances or indirectly to regulate the magnitude of such imbalances through intervention in foreign exchange markets, influencing the country’s currency exchange rate.
Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise, said the Afreximbank fund was poised to play a crucial role in enhancing market stability, with expectations of substantial positive impacts on Nigeria’s financial landscape.
He expressed optimism about the fund’s potential in addressing market challenges.
