BY OBSERVERS TIMES
Nigeria recorded a US$22.89 billion inflow in foreign exchange into its economy in Q3 2024. Viewed as a boost for the struggling local currency – the Naira, the Central Bank of Nigeria (CBN) in its recent economic report disclosed that the said amount constituting a 3-month inflow represented some 3.01% growth from US$22.22 billion announced in the preceding quarter.
Similarly, FX inflows through the instrumentality of the apex bank were said to have surged by 39.63% – peaking at US$11.86 billion up from US$8.49 billion in Q2 2024. Autonomous sources, nonetheless, witnessed a decline of 19.66% from US$13.72 billion to US$11.03 billion.
On the flip side, records indicate Dollar outflows through the economy rose by 15.18% to US$8.43 billion relative to the level in Q2 2024. Outflows via the bank increased by 27.91% to US$7.31 billion with counterparts from autonomous sourcesdecreasing by 30.06% to US$1.12 billion during the period of review.
Consequently, net foreign exchange inflow through the economy decreased by 2.97% to US$14.46 billion from US$14.89 billion in the preceding quarter. However, net inflow through autonomous sources fell to US$9.90 billion from US$12.12 billion in Q2 2024. Interestingly, a net inflow of US$4.55 billion was declared through the apex entity compared to net outflow of US$2.78 billion for the period under review.
Analysing the economic report, BusinessDay Newspaper of January 2, 2025 quotes financial experts at FBNQuest Research Capital as attributing the US$22.89 billion inflow to CBN’s strategic interventions in the FX market. These are said to be aimed at alleviating demand pressures and bolstering liquidity.
Said the paper; “The uptick in FX inflows is largely credited to the CBN’s contractionary monetary policy, which continues to attract capital inflows from offshore investors. The bank’s hawkish stance, complemented by strategic FX supply management, has also helped curtail outflows, strengthening the financial system’s overall liquidity.”
Digressing to examine the domestic outlook for Nigeria in the next quarter of the year, the CBN economic report maintained that inflation is expected to remain elevated. The reason is simple: impact of ongoing policy reforms with consequence of an increase in both energy and transportation costs.
However, the report argues that the relative stability at the foreign exchange market, amongst other factors, could contributein moderating inflation. Projecting into the future, the report predicts that the fiscal outlook in the near-to-medium-term remains bright. This is because fiscal reforms exert favourableoutcomes which are evident in contracting fiscal deficit and higher revenue collection.
Nevertheless, the volatility in global crude oil prices coupled with low productive capacity of the nation’s petroleum industry vis-a-vis OPEC quota were viewed as risks to the ambitious outlook of the report.
Laudable as the efforts of the CBN appear in the Q3 2024economic report with its monetary policies – like the last MPC’s 25 basis-point rate hike – it is the considered opinion of Observers Times that the measures put in place must have consistency for sustainability of the boost in FX inflows. Other suggestions for revamping the economy can be articulated.
We recommend operationalization of effective reserve management strategies which should go a long way in reducing impact of the vulnerability of the economy to external shocks. It is a no-brainer that achieving macroeconomic stability will require improving expansionary set of actions.
If Nigeria’s current headline inflation rate of about 38% is to be tamed, raising the Cash Reserve Ratio of Deposit Money Banks to 50.00% from 45.00% and Merchant Banks to 16.00% from 14.00% possess the solution.
Just as ensuring the independence of the CBN as a regulator constitutes an important requirement, we believe reducing tariffs and non-tarriff barriers in the economic sector is sine qua non to overcoming the challenges in the FX market.
Beyond the monetary framework, notwithstanding, fiscal policies would have to be strengthened to create an enabling environment to improve the Ease-of-Doing Business Initiative with a view to attracting much-sought-after FDIs and encouraging diaspora remittances.
Let us not forget that diversification of the economy from oil dependence to other sectors like solid minerals development, agriculture, manufacturing and related services – moreover – can positively support Nigeria’s economic stability and growth.
