Foreign inflows bolster reserves, but naira continues to struggle under economic pressures

Nigeria’s External Reserves Reach 22-Month High Despite Naira Weakness

Nigeria’s external reserves have reached a 22-month high of $37.31 billion, signaling significant foreign inflows into the economy. However, despite the growth in Nigeria’s external reserves, the naira has continued to struggle, ranking among the 10 worst-performing currencies globally, according to Bloomberg.

The surge in Nigeria’s external reserves was driven by various factors, including foreign investments, remittances from Nigerians abroad, and loans from multilateral organizations. Notably, the Central Bank of Nigeria (CBN) reported that these reserves serve as a vital buffer to stabilize the naira and meet the country’s international financial obligations. Still, despite this upward trend in reserves, the local currency has continued to lose value.

As of September 18, 2024, the reserves stood at their highest since November 2022. This increase marks a 12.99 percent growth year-to-date, highlighting the influx of foreign currency into the country. Key contributions to Nigeria’s external reserves include domestic dollar bonds issued by the federal government and remittances. In particular, the first series of a $2 billion domestic bond raised over $900 million, attracting investors and boosting the reserves.

Despite these gains, the naira has depreciated sharply, losing 49.56 percent of its value against the dollar in the official forex market over the review period. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, attributed the naira’s decline to a lack of confidence in the foreign exchange market, which has led to speculative trading against the currency.

Even with the growth of Nigeria’s external reserves, the naira’s ongoing struggles suggest that a more comprehensive approach is needed to restore currency stability. Experts believe addressing security issues in the oil sector and boosting crude oil production could provide long-term solutions for increasing foreign exchange inflows and strengthening the naira.