Minister of Finance and Coordinating Minister of the Economy, Wale Edun, has announced that Nigeria’s Central Bank foreign reserves have seen a significant net inflow of $2.35 billion monthly over the past seven months of 2024.
This development, according to Edun, has contributed to greater stability in the naira and the country’s foreign exchange market, reflecting the government’s ongoing efforts to stabilize the economy amid challenging global conditions.
Speaking at the Access Bank annual corporate forum 2024 in Lagos, the minister highlighted that the continuous inflow has boosted the country’s gross reserves and alleviated concerns about currency volatility, a critical issue following the multiple exchange rate system in the past. Edun highlighted the positive outcomes of these changes.
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“We have relative currency stability. And of course, the all-important margin of the rates. We’ve seen a gradual elimination of multiple exchange rates,” he said.
Foreign Reserve Growth
The increase in foreign reserves is seen as a major contributor to the enhanced liquidity in the country’s foreign exchange market. The Central Bank of Nigeria (CBN) reports that the foreign reserves surged to a historical $34.66 billion by June 2024, reflecting investor confidence and an inflow of foreign portfolio investments spurred by rising interest rates and naira devaluation. These factors incentivize investors to see Nigeria as a favorable market for returns, bolstering the reserve base.
Furthermore, remittance inflows also recorded significant growth, surging by 130% to $553 million as of July 2024, according to the CBN. This increase signals a substantial inflow of foreign currency into the country, strengthening the stability of the naira and providing a cushion against potential external shocks.
Increase in Government Revenue
Edun also pointed out the fiscal side of the government’s strategy, focusing on increasing revenue generation. He stressed that government revenues are growing but acknowledged that Nigeria’s tax-to-GDP ratio, at just 10%, remains one of the lowest globally. The country’s revenue-to-GDP ratio is around 15%, a figure the government aims to improve through targeted fiscal reforms and infrastructure investments.
However, the minister clarified that the government does not intend to compete with the private sector for revenue but rather focuses on essential social and infrastructural investments that will spur long-term growth.
“The key to government revenue is not so much that government has revenue to compete with the private sector. It’s the fundamentals, the social and the key infrastructure spending. The social safety net spending,” Edun explained.
Oil Production and Export Diversification
In a bid to shore up fiscal revenues, Edun reiterated the government’s commitment to ramp up crude oil production. Nigeria is on track to hit its 2 million barrels per day (bpd) oil production target by the end of 2024, a significant achievement given the numerous disruptions that have plagued the sector in recent years, including theft and infrastructural decay.
Beyond oil, Edun emphasized the need for export diversification, particularly in the service sector. With Nigeria’s young and relatively skilled population, there is a growing potential for the country to become a major exporter of services. This focus on diversification, he said, aims to reduce the country’s dependence on oil revenues and create a more resilient economy capable of weathering global economic shifts.
The recent improvements in Nigeria’s foreign reserves and the push for greater export diversification come at a critical time when the government is striving to stabilize the economy and address structural challenges. While high inflation, unemployment, and fiscal deficits remain pressing concerns for Nigeria, Edun expressed conviction that the current upward trajectory in reserves and remittances could provide a buffer as the government works on long-term reforms.
However, these positive indicators have had to contend with many economic-stymieing challenges. For instance, the multiple exchange rate system, though gradually being phased out, had distorted the foreign exchange market for years, creating arbitrage opportunities that hurt the broader economy.
Economists have emphasized that the role of foreign investors and international partnerships will be key as Nigeria aims to consolidate these gains. They note that ensuring the continued inflow of capital through sound policies and economic stability will be crucial for sustaining the upward momentum in the country’s reserves and currency strength.