Nigeria’s foreign exchange dynamics experienced notable shifts in the third quarter of 2024. While the overall net inflow saw a marginal dip of 2.97% compared to the previous quarter, reaching $14.46 billion, it marked a substantial 75.91% surge from the same period in 2023. This indicates a significant year-on-year improvement in the country’s foreign exchange earnings. A deeper dive reveals contrasting trends within these figures. Inflows through official channels increased by a robust 39.63%, reaching $11.86 billion, while autonomous sources, which include remittances and private investments, witnessed a decline of 19.66%, totaling $11.03 billion. This shift suggests a growing reliance on official channels for forex inflows. Simultaneously, foreign exchange outflow rose by 15.18% to $8.43 billion, primarily driven by a 27.91% increase in outflows through official channels. The decrease in outflows through autonomous sources offers a glimmer of stability in this aspect of the forex market.
A significant contributor to the positive trend in foreign exchange inflows was the remarkable surge in diaspora remittances. Between January and October 2024, remittances processed through official channels reached $4.22 billion, nearly double the $2.62 billion recorded during the same period in 2023. This substantial increase was attributed to improved efficiency in the remittance system, positive effects of recently implemented government policies, and growing confidence among Nigerians in the diaspora to contribute to national development. The monthly analysis further reveals consistent growth, with remittances rising from $336 million in September to $402 million in October 2024. This steady increase underscores the growing importance of remittances in bolstering Nigeria’s foreign exchange reserves.
Despite the overall positive trajectory of foreign exchange inflows, the Nigerian Naira experienced depreciation in the autonomous foreign exchange market. The average exchange rate depreciated by 14.62% to N1,588.64/$ in the third quarter, compared to N1,385.96/$ in the previous quarter. This depreciation was attributed to increased demand pressure on the Naira, highlighting the ongoing challenges in stabilizing the currency’s value. However, on a more positive note, Nigeria’s external reserves witnessed significant growth, reaching $39.29 billion by the end of September, up from $34.76 billion. This substantial increase in reserves provided a cushion, offering an import cover of 8.91 months for goods and services and 13.34 months for goods only, indicating a strengthened position to manage external shocks and import dependencies.
Looking ahead, the Central Bank of Nigeria (CBN) forecasts a complex economic landscape. Inflation is projected to remain elevated in the remaining months of 2024, driven by ongoing policy reforms impacting energy and transport costs. While the CBN’s contractionary monetary policy, relative stability in the foreign exchange market, and the harvest season for some food staples are expected to mitigate inflationary pressures, the overall outlook remains cautiously optimistic. The fiscal outlook appears brighter in the near to medium term, with fiscal reforms yielding positive results, evidenced by contracting fiscal deficits and increased revenue collection. However, the volatility of global crude oil prices and Nigeria’s production levels relative to OPEC quotas pose challenges to this positive outlook.
The external sector is expected to maintain its strength, fueled by improvements in the trade surplus, increased domestic crude oil production, and the anticipated full operation of the Dangote and Port Harcourt refineries. These factors, combined with supportive global economic conditions, including easing inflation in advanced economies, are expected to stimulate trade and investment, contributing to a more robust external sector performance. Despite these positive projections, the reality of high inflation remains a pressing concern. As of November 2024, inflation stood at 34.60%, a 0.72% increase from October’s rate of 33.88%. This persistent high inflation, driven primarily by food and energy costs, poses a significant challenge to the CBN’s efforts to stabilize the economy and achieve its inflation targets.
While projections for December’s inflation figures vary, it is unlikely to drop to the 21.4% projected by the CBN in its 2024 macroeconomic outlook. This discrepancy highlights the complex interplay of factors influencing inflation and the challenges in accurately forecasting its trajectory. The combination of rising energy and transport costs due to policy reforms, along with the persistent impact of global economic uncertainties, presents a complex scenario for managing inflation effectively. The CBN’s ongoing efforts to balance its contractionary monetary policy with the need to support economic growth will be crucial in navigating these challenges and achieving its macroeconomic objectives.
