In its latest country report for Nigeria, the International Monetary Fund (IMF) has forecasted a significant decrease in Nigeria’s foreign reserves, estimating a potential decline to $24 billion by 2024. This projection indicates potential forex challenges for Africa’s largest economy, given the current reserves standing at $33.12 billion as of February 8.
The IMF report anticipates a challenging period for Nigeria’s financial account in the coming years, primarily due to factors such as the absence of new Eurobond issuances, significant repayments of existing funds and Eurobonds totaling $3.5 billion, and continued portfolio outflows.
Despite projecting a current account surplus, the IMF expects the country’s reserves to dwindle to $24 billion by 2024. However, a recovery is anticipated, with reserves projected to increase to $38 billion by 2028 as portfolio inflows are forecasted to pick up again.
The report highlights that the first half of 2023 witnessed a surplus in the current account, but there was a notable decline in reserves. This downturn is attributed to various factors, including a decrease in crude oil exports due to oil theft and insufficient investment in upstream infrastructure.
Additionally, profit repatriation from the oil sector has declined, partially offsetting the adverse effects on the current account. However, Foreign Direct Investment remains low, while there has been an increase in portfolio outflows, including equity and Eurobond repayments, as well as repatriations.
The IMF underscores that the Nigerian authorities have not provided comprehensive information on short-term foreign exchange liabilities, which are essential for accurately calculating net international reserves.
Furthermore, the report highlights challenges such as stalled per-capita growth, poverty, and high food insecurity exacerbating the cost-of-living crisis in Nigeria. Low revenue collection has also hindered service provision and public investment, contributing to headline inflation reaching 27 per cent year-on-year in October, with food inflation at 32 per cent. These inflationary pressures stem from factors such as fuel subsidy removal, exchange rate depreciation, and poor agricultural production in the country.