Nigeria’s external reserves swell as diaspora remittances surge

By Sodiq Adelakun

In a positive economic development, Nigeria has witnessed a notable increase in its external reserves, with a 2.83 percent growth since the start of the year.

The Central Bank of Nigeria (CBN) reported that the country’s foreign currency reserves climbed to a robust $34.11 billion by March 7, 2024, up from $33.17 billion at the commencement of the year.External reserves, which are critical for a nation’s economic health, consist of foreign currencies, gold, and other international assets held by the Central Bank.

The rise in reserves is a sign of economic stability and can bolster investor confidence, as it indicates the nation’s capability to handle international payments and absorb shocks from economic volatility. Furthermore, a healthy reserve level empowers the Central Bank to intervene in the currency markets to stabilise the domestic currency, preventing undesirable fluctuations.

In a related financial triumph, the CBN announced a dramatic increase in Diaspora remittances. The figures for February showed an extraordinary 433 percent jump, reaching a high of $1.3 billion, a significant rise from the $300 million recorded in January.

This surge in remittances underscores the vital role of the Nigerian diaspora in bolstering the country’s foreign exchange reserves and contributing to economic stability.

The dual increase from foreign capital inflows and remittances has provided a cushion for Nigeria’s economy, suggesting a potential for sustained economic growth and stability.

“We saw a 1.0 percent week-on-week (w/w) accretion in the foreign reserves to $34.02bn as of March 6th, 2024, owing to foreign capital inflow (evident in the year-to-date (YTD) foreign net inflows of $822.6m through the NAFEM window) following CBN’s drive to attract FX,” analysts at Afrinvest Securities Limited, said.

Naira on Friday depreciated by 1.55 percent as the dollar was quoted at N1,627.40, weaker than N1,602.17 quoted on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange.

Intraday high also weakened to N1,640 per dollar on Friday compared to N1,635 on Thursday. However, the intraday low appreciated to N1,413/$1 on Friday, stronger than N1,470/$ on Thursday.

Dollar supply by willing sellers and willing buyers increased by 63.48 percent to $269.35 million on Friday from $164.76 million recorded on Thursday.

At the parallel market, also known as the black market, naira steadied at N1,620 per dollar.

Olayemi Cardoso, Governor of the CBN, said after the Monetary Policy Committee (MPC) meeting on February 27, 2024 that Nigeria’s external reserves have risen to $34 billion as against $33 billion at the beginning of the year.

On February 5, 2024, the CBN said it had reduced the $7 billion FX backlog it inherited to $2.2 billion and vowed it was working to clear the outstanding balance.

On a weekly basis, a report by Afrinvest noted that across the FX market this week, the Naira remained stable and traded within a similar band as the previous week. It said at the NAFEM Window, activity level improved 41.4 percent ($473.1m) to $421.6 million and the price currency (naira) fell 4.9 percent w/w against the base currency (dollar) to N1,627.40/$1.00. Similarly, the price currency (naira) dipped 5.3 percent w/w against the base currency (dollar) to N1,600.00/$1.00 at the parallel market.

“We note that the spread between the NAFEM and parallel rates sustained its streak for the second week though the weekly average declined 98.8 percent to N27.40.

“In the week ahead, the Naira is likely to trade within a similar band across FX segments, supported by intensified regulatory spotlight,” the analysts said.