The International Monetary Fund has projected that Nigeria’s foreign reserves may fall to $24billion in 2024. IMF anticipated a challenging period through 2024–25 for the country’s financial account, exacerbated by an absence of new Eurobond issuances, significant repayments of existing funds and Eurobonds totaling $3.5 billion, and continued portfolio outflows.
The fund revealed this in its latest country report for Nigeria, indicating a significant drop and potential forex challenges for Africa’s largest economy. The country’s external reserves stood at $33.12billion as of February 8 and projected to fall to $24billionin 2024.
The IMF noted that the first half of 2023 witnessed a surplus in the current account, yet there was a notable decline in reserves. The downturn was as a result of a decrease in crude oil exports, largely due to oil theft and a lack of investment in essential upstream infrastructure.
Despite projecting a current account surplus, the reported reserves were expected to diminish to $24bn in 2024, with a hopeful recovery to $38bn by 2028 as portfolio inflows were forecasted to pick up once again.
According to the report “Through 2024–25, the financial account is likely to deteriorate, with no projected issuance of Eurobonds, large Fund and Eurobond repayments of $3.5bn, and portfolio outflows.
“Hence, despite a current account surplus, officially reported reserves are projected to decline to $24bn in 2024 before increasing again to $38 billion in 2028 as portfolio inflows resume.”
The IMF report added that profit repatriation from the oil sector had dipped, albeit slightly offsetting the adverse effects on the current account.
Amid those dynamics, Foreign Direct Investment in the country has remained low, while there has been an uptick in portfolio outflows, including equity and Eurobond repayments as well as repatriations.
The report added, “The CBN reported a 30-day average of gross international reserves declined to $33bn in October (almost $4bn below end-2022), covering six months of imports and 83 per cent of the IMF’s ARA metric.
“Following the IMF’s definition of GIR, $8bn in securities are considered pledged collateral that are thus not readily available, reducing GIR under the IMF’s definition to $25bn at end-October 2023.
“The authorities have not shared full information on short-term FX liabilities which would be necessary to calculate net international reserves. Through 2024–25, the financial account is likely to deteriorate, with no projected issuance of Eurobonds, large Fund and Eurobond repayments of $3.5 billion, and portfolio outflows.”