Challenging times ahead as IMF predicts Nigeria’s foreign reserves to drop to $24bn in 2024

Nigeria may be heading for a challenging time ahead in 2024 and 2025 if the latest reports by the International Monetary Fund (IMF) is anything to go by.

In the latest country report for Nigeria titled “IMF Executive Board Concludes Post Financing Assessment with Nigeria” the fund projected that Nigeria’s foreign reserve which is at $33.12 billion as of February 8, 2024 is expected to see a significant reduction, falling to as low as $24 billion in the year 2024.

This will be brought about by an absence of new Eurobond issuances, significant repayments of existing funds and Eurobonds totalling $3.5 billion, and continued portfolio outflows coupled with dwindling oil revenue.

The Fund raised an alarm that hydrocarbon exports have declined, likely owing to pervasive theft and inadequate investment in upstream infrastructure. Profit repatriation from the hydrocarbon sector has also declined, dampening the negative impact on the current account. FDI remains subdued, while portfolio outflows (equity, Eurobond repayments, repatriations) have increased.

“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.

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“Hence, despite a current account surplus, officially reported reserves are projected to decline to $24 billion in 2024 before increasing again to $38 billion in 2028 as portfolio inflows resume” the report reads.

According to the IMF, the CBN reported that the 30-day average of Gross International Reserves (GIR) had dwindled to $33 billion by October 2023, marking a decrease of nearly $4 billion from the end of 2022. This level of reserves provides for six months of import cover and meets 83% of the IMF’s Assessing Reserve Adequacy (ARA) metric.

The IMF also raised alarm that the Nigerian government had yet to disclose comprehensive information on short-term foreign exchange liabilities, which are crucial for calculating the net international reserves accurately.

Also, the IMF highlighted the importance of the Nigerian authorities’ ability to manage the country’s external financial obligations effectively.

The IMF’s projections are based on the assumption that Nigeria will successfully roll over all maturing forwards and swaps, underscoring the significance of adeptly navigating the external financial landscape to secure and expand Nigeria’s foreign reserves in the coming years.

By Babajide Okeowo

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