The Central Bank of Nigeria (CBN) has highlighted potential risks to the growth of the country’s external reserves in its Monetary, Credit, Foreign Trade, and Exchange Policy guidelines for the fiscal years 2024/2025. The removal of fuel subsidies, coupled with rising import bills and increased external debt servicing obligations, may pose significant challenges to reserve accumulation during this period.
Despite these concerns, the CBN projects a positive economic growth outlook for Nigeria in 2024/2025, driven by ongoing policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and effective implementation of the Finance Act 2023 alongside the 2022-2025 Medium-Term National Development Plan (MTNDP).
The CBN stated, “The outlook for Nigeria’s external sector in 2024/2025 is optimistic, supported by favorable terms of trade due to a sustained rally in crude oil prices and improvements in domestic oil production.” The positive outlook is bolstered by rising crude oil prices, capital flows, and remittances, all of which contribute to the overall economic resilience.
However, the bank cautioned that lower crude oil earnings, the impact of fuel subsidy removal, increasing import costs, and heightened external debt obligations could negatively affect external reserve growth. Additionally, ongoing monetary policy tightening by central banks in advanced economies raises the specter of capital outflows, further complicating the economic landscape.
On the subject of Nigeria’s output growth, the CBN expressed optimism, stating, “Nigeria’s output growth is expected to maintain a positive trajectory in 2024/2025.” This growth is contingent upon sustained support in key sectors, foreign exchange market reforms, and the successful implementation of fiscal policies.
Nevertheless, the bank acknowledged that the outlook remains vulnerable to several headwinds, including rising energy prices due to the ongoing effects of the Russia-Ukraine conflict, persistent security challenges, and infrastructural deficits, all of which could hinder short- to medium-term growth.
The CBN anticipates that domestic prices will remain elevated through 2024/2025, influenced by global supply constraints and exchange rate fluctuations. Moreover, the ongoing security and infrastructural issues are likely to exacerbate inflationary pressures.
In terms of fiscal performance, the CBN expects a positive recovery trajectory in 2024/2025, contingent upon the effective implementation of the Finance Act 2023 and the restructuring of key revenue-generating ministries to enhance non-oil revenue. However, challenges such as low domestic crude oil production, escalating public debt, and the impact of global economic slowdowns may pose significant risks to fiscal stability in the near term.
Lastly, the CBN projects that the financial sector will remain resilient through 2024/2025, reflecting the bank’s commitment to monitoring emerging vulnerabilities and risks within the system through measures such as periodic stress tests and the provision of risk mitigants.