A tight monetary environment and foreign exchange reforms are expected to stabilise Nigeria’s external reserves, Afreximbank has said in its latest country report for Nigeria.
“External reserves are expected to stabilize around US$33 billion in 2024 and 2025, driven by high interest rates and foreign exchange reforms,” Afreximbank said.
It noted that the hawkish stance of the monetary authorities have raised confidence in the markets and attracted investments into the country.
The pan-African supranational multilateral financial institution said the country’s foreign reserves have been quite volatile since the economic recession in 2016 when they declined to US$27 billion.
It added that even when there was an increase in crude oil prices in 2022 following the war in Ukraine, Nigeria’s external reserves dropped, indicating that the country was not attracting dollar liquidity.
“Foreign reserves fell to US$35.5 billion in 2022 from US$40.4 billion in 2021. In 2023, it fell further to US$34.45 billion,” the Cairo-based financial institution said.
The fluctuations in the reserves were caused by a fall in crude oil production, increased demand for foreign exchange, and weak foreign investment inflows into the country, the report said.
Nigeria’s monetary policy committee has continued tightening conditions to tame inflation and strengthen the battered naira which has made it increase benchmark interest rates for 12th straight meetings.
It raised the monetary policy rate by an additional 50 basis points — the lowest this year — putting the rate at 26.75 percent up from 26.25 percent. The MPR has now been hiked by a total 800 basis points, in what is expected to lure in investors.
The governor of the Central Bank of Nigeria (CBN) also revealed that the country’s reserves have been steadily increasing, hitting a 17-month high of $37.05 billion in July 2024.
The last time Nigeria had reserves slightly above $37 billion was February 2023, exactly 17 months ago, according to the apex bank’s data.
