Despite Nigeria’s external reserves growing by 8.36% in the past year following the surge in remittances and international financial inflows, the naira continues to lose value against the U.S. dollar, declining by 50.80% over the same period.
According to the Central Bank of Nigeria (CBN), the country’s foreign currency reserves rose to $36.79 billion by July 31, 2024, up from $33.95 billion recorded the previous year.
This has been driven by a surge in remittances and various international support packages, including a $3.3 billion AfreximBank oil facility and $2.25 billion from the World Bank Group.
The CBN reported that total direct remittance inflows increased by 129.46% to $553 million in July 2024, compared to $241.22 million in July 2023.
Remittances had similarly climbed by 22.66% in the prior year, reflecting the importance of diaspora funds in boosting Nigeria’s foreign exchange reserves.
Despite these gains, the naira has faced severe depreciation. At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the currency tumbled from N791.42 per dollar in July 2023 to a staggering N1,608.73 per dollar as of July 2024.
In the parallel market, the naira’s performance was similarly poor, dropping from N867 per dollar in 2023 to N1,610 per dollar by July 2024.
The CBN has attributed the pressure on the naira to a combination of factors, including reduced availability of U.S. dollars and rising demand for foreign currency for personal and commercial transactions.
Nigeria has seen a massive surge in demand for foreign exchange to fund education, healthcare, and personal travel, further straining its reserves. Over the past decade, demand for dollars for these sectors reached nearly $40 billion.
In addition to remittances, Nigeria has also benefited from a rise in capital importation and foreign direct investment (FDI), which have collectively pushed net foreign exchange inflows to $25.4 billion in the first half of 2024 — a 55% year-on-year increase.
Despite the increase in reserves, experts argue that Nigeria’s efforts to stabilize the naira have been insufficient.
Charlie Robertson, head of macro strategy at FIM Partners, pointed out that Nigeria’s currency and interest rate dynamics are attracting investors, but at a modest rate compared to other nations like Egypt, which has secured over $20 billion in foreign investments in the same period.
Robertson also highlighted that while Nigeria’s approach focuses on improving trade balance without external financial aid, the lack of sufficient external support has created vulnerabilities that leave the naira exposed to continued depreciation.
While the CBN remains hopeful that ongoing policy reforms and inflows from diaspora remittances will eventually stabilize the currency, analysts remain cautious.
The demand for dollars far outweighs the supply, creating a vicious cycle that continues to erode the naira’s value.