CEM REPORT, ECONOMY| Nigeria’s foreign exchange (FX) market has experienced a remarkable turnaround in the first quarter (Q1) of 2024, with inflows surging to a staggering 136% compared to the entire year of 2023. This positive development, attributed to key reforms by the Central Bank of Nigeria (CBN), has instilled confidence in stakeholders and bolstered the Naira’s stability.
Blaise Ijebor, Director of Risk Management at the CBN, representing Governor Olayemi Cardoso, addressed the 8th edition of the Vanguard Economic Summit on May 23rd, 2024, in Lagos. He highlighted the significant role played by recent reforms in liberalizing the FX market.
“These reforms have enhanced transparency, reduced arbitrage opportunities, promoted market stability, and improved liquidity,” Ijebor stated.
A crucial element of the reforms involved settling all outstanding FX backlogs, a commitment made by Governor Cardoso upon assuming office. This decisive action, according to Ijebor, significantly boosted stakeholder confidence.
Data Reveals Dramatic Increase in FX Inflows
Data obtained from the FMDQ website paints a clear picture of the FX market’s resurgence. The Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed a substantial 41.7% increase in total inflows during March 2024, reaching a staggering $3.75 billion. This represents the highest level since March 2019, surpassing the previous record of $6.07 billion.
Foreign sources also contributed significantly, with inflows spiking by a remarkable 39.6% to $1.54 billion – the highest level in over four years. The data further reveals a healthy balance between local and foreign participation, with local sources accounting for 59% and foreign sources contributing 41% of total transactions.
CBN Committed to Long-Term Naira Stability
Ijebor emphasized the CBN’s unwavering commitment to a transparent and functional FX market driven by market forces. “Price discovery will be based on market-driven frameworks, and we are confident that this will lead to long-term stability of the Naira,” he declared.
Acknowledging the public’s desire for a clear and consistent exchange rate, Ijebor addressed the challenge of inflation. He identified food inflation as a primary driver, citing factors such as rising transportation costs for farm produce, infrastructure constraints, security issues in food-producing regions, and the pass-through effect of exchange rates on imported goods.
Monetary Policy Tailored to Address Inflation
The CBN is actively tackling inflationary pressures through its monetary policy, Ijebor assured the audience.
“We believe the results will become evident in the data,” he stated, pointing to a promising trend – a decline in the growth rate of headline and food inflation figures based on March 2024 data.
Government Initiatives Fuel Investment and Economic Growth
Kashim Shettima, represented by Tope Fashua, Special Adviser to the President on Economy, outlined the government’s efforts to steer the Nigerian economy towards sustainable growth. Fashua highlighted President Tinubu’s success in securing over $20 billion in potential investments, including significant commitments from India, the Netherlands, Germany, and others, in sectors like renewable energy and natural resource development.
He further emphasized the administration’s focus on fiscal responsibility.
“The approach of the Tinubu administration is to tackle the ‘ways and means’ situation head-on with clear timeframes for resolution,” Fashua explained.
This includes properly classifying loans as part of the national debt and ensuring responsible management of future borrowing.
Fashua concluded by assuring Nigerians that the government’s policies are not intended to create hardship, but rather to ensure long-term economic sustainability and improved living standards for all citizens. The coming years, he predicted, will be marked by positive achievements and advancements in the Nigerian economy.
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If You Ask Me
Nigeria’s FX market is experiencing a welcome resurgence in 2024. The CBN’s commitment to transparency, market efficiency, and inflation control, coupled with the government’s proactive approach to attracting investments and ensuring fiscal responsibility, paints a brighter picture for the Nigerian economy.
While challenges remain, the current momentum suggests a promising path towards sustained growth and stability.
