The IMF has forecasted a potential $8 billion reduction in Nigeria’s foreign reserves for 2024, as outlined in its latest country report. This suggests a significant decline and potential foreign exchange challenges for the largest economy in Africa.
As of February 8, the country’s external reserves were reported at $33.12 billion. The IMF anticipates a challenging financial account situation for Nigeria through 2024–25. This is aggravated by the absence of new Eurobond issuances, substantial repayments of existing funds and Eurobonds amounting to $3.5 billion, and sustained portfolio outflows.
Despite the projection of a current account surplus, the reported reserves are expected to decrease to $24 billion in 2024. A potential recovery to $38 billion by 2028 is anticipated as portfolio inflows are predicted to resume.
The report highlights that the first half of 2023 witnessed a current account surplus, but reserves experienced a noticeable decline. This decline is attributed to reduced crude oil exports, primarily due to oil theft and inadequate investment in essential upstream infrastructure.
Profit repatriation from the oil sector also dipped, partially offsetting the adverse effects on the current account. Foreign Direct Investment in Nigeria remained low, while there was an increase in portfolio outflows, including equity and Eurobond repayments, as well as repatriations.
The IMF emphasizes that the Central Bank of Nigeria reported a 30-day average of gross international reserves, which declined to $33 billion in October. This was nearly $4 billion below the end-2022 level, covering six months of imports and 83 percent of the IMF’s Adequacy of Reserves metric.
The report raises concerns about the lack of comprehensive information from Nigerian authorities on short-term foreign exchange liabilities. Such information is crucial for accurately calculating net international reserves.
The IMF recently stated that stalled per-capita growth, poverty, and high food insecurity have worsened the cost-of-living crisis in Nigeria. It highlighted that low revenue collection has hindered the provision of services and public investment. Additionally, headline inflation reached 27 percent year-on-year in October, with food inflation at 32 percent, reflecting the impacts of fuel subsidy removal, exchange rate depreciation, and poor agricultural production in the country.
Reporter: Tobi Adetunji
News Source: Techeconomy
