By Geoff Iyatse
• Nigeria breaks balance of payment deficit history, records $6.8b surplus
• Naira trading at N45/$ discount at black market amid fresh panic
• Be wary of reactive policies, Kale warns government
The Central Bank of Nigeria (CBN) is betting on a stronger external position to stabilise the naira in the face of capital flight from risky assets. But the apex bank would require a stronger handshake with the reticent fiscal authority to record a significant breakthrough in its desire to pull the economy out of the multi-year foreign exchange crisis.
Just yesterday, the apex bank followed up with a series of good news about the country’s external sector, announcing a $6.83 balance of payment (BOP) surplus for last year. It was a significant break from the 2022 and 2023 deficits when the country reported -$3.34 billion and -$3.32 billion BOP, respectively.
BOP, which tracks current capital and financial accounts, measures the international monetary transitions between a country and the rest of the world for some time. A surplus BOP means that a country receives more than it pays for the referenced period and suggests a stronger external position.
Proving details of the BOP position, the CBN said the current and capital account recorded a surplus of $17.22 billion, with goods trade surplus standing at $13.17 billion.
According to a statement issued by the bank, petroleum imports declined by 23.2 per cent to $14.06 billion, while non-oil imports fell by 12.6 per cent to $25.74 billion.
On the flip side, gas exports rose by 48.3 per cent to $8.66 billion while non-oil exports rose by 24.6 per cent to $7.46 billion, brightening Nigeria’s prospects.
Remittance inflows remained resilient, with personal remittances growing by 8.9 per cent to $20.93 billion last year, just as the international money transfer operator (IMTO) inflows were up by 43.5 per cent to $4.73 billion.
Last year, the Central Bank said it began a more aggressive engagement with IMTOs to increase remittances as part of its efforts to increase the supply of the FX market.
Nigeria, according to information released by the CBN, also recorded a net acquisition of financial assets of $12.12 billion, just as portfolio investment inflows doubled to $13.35 billion. Resident foreign currency holdings also grew by $5.41 billion, suggesting a higher confidence in domestic economic stability.
But there was a substantial downside in the foreign direct investment, which fell by 42.3 per cent to $1.08 billion. This, however, was insignificant considering the growth recorded across another component of the BOP.
The bank said the BOP surplus pointed to the positive impact of the ongoing market reforms, which has left Nigerians paying close to 400 per cent more fuel and naira losing about 70 per cent of its value compared to two years into the administration of President Bola Tinubu.
“The liberalisation and unification of the foreign exchange market, a disciplined monetary policy approach to managing inflation and stabilising the naira and coordinated fiscal and monetary measures have all contributed to enhanced competitiveness and investor sentiment,” the statement signed by the Acting Director, Corporate Communications, Hakama Sidi-Ali, stated.
The Central Bank, earlier, said the country closed last year with net foreign exchange reserves (NFER) of $23.11 billion – almost 500 per cent higher than the value in 2023 ($3.99).
The disclosure was seen as a major step towards full disclosure, which analysts said is required to restore market confidence. The apex bank, however, was short of disclosing details of the short-term FX liabilities for a full stamp on the credibility of the NFER report.
Still, on account of the significant increase in NFER and the change of leadership of NNPC Limited, JP Morgan, a leading investment bank, gave a clean bill of health on the domestic economy and described its asset as a hedge against a troubled global economy.
Betting on Nigeria’s economy, JP Morgan noted that the naira is undervalued and projected the currency to close the year at N1450/$ – N50/$ higher than the Federal Government budget benchmark.
The CBN is counting on a robust stronger-than-expected external position to stabilise the naira, which the President of the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dele Oye, said must be “reasonably predictable and not necessarily pegged” to unlock the potential of the manufacturing sector and save the economy.
Oye, who spoke at the Vanguard Economic Summit in Lagos yesterday, listed some of the failings of the fiscal authority, such as inadequate consultation with the private sector and policy flip-flop. Experts have pointed out the concerns raised by Oye as among the first port of call in addressing the long-standing crisis in the FX market.
At the close of Q1, the gross external reserves were drawn down to nearly $38 billion from $40.2 billion it closed 2024, suggesting a resurging pressure on the growth in the intervening months. Interestingly, a report said the CBN spent $668.8 million to defend the naira in the quarter.
Despite the aggressive intervention, the naira has seen a significant steep depreciation in the past few months. Yesterday, the naira closed at N1,645/$, a sharp fall from the Q1 average. At the parallel market, the local currency has also weakened to N1600/$ compared to the N1550/$ band it traded in Q1.
In a rare case, the naira is trading at a discount at the black market, suggesting that the CBN may need to look beyond speculative activities to rein in the current panic.
Indeed, there are sufficient reasons to be apprehensive. First, the petrodollar economy is at a breaking point once again and grappling with multiple headwinds – with much of the challenges largely exogenous.
In the past week, oil traded around $65 per barrel, $10 short of the FG’s benchmark price. Should prices remain subdued and production remain at about 1.5 million barrels per day – the year-to-date (YTD) average, the government, which is targeting N40.9 trillion in revenue to fund the oversized N54.99 trillion, may suffer a significant hair shave, which could see the projected N13.64 trillion spike.
This year, the Federal Government is looking at an N29.87 trillion slice from the Federation Account Allocation Committee (FAAC) – an amount that is only N1.23 trillion short of the N31 trillion the lead four revenue agencies remitted last year.
Independent revenues and what the government classified as “other revenues” are to add N5.26 trillion and N5.76 trillion, respectively, to the total N40.89 trillion equity funding.
The government would need to deal with the insecurity crisis in the Niger Delta to scale up production. But rather than abating, the pockets of protests in the Niger Delta continue to multiply.
Just yesterday, protesters grounded operations at a 28,000-barrel-per-day Escravos oil production facility at Ogidigben, one of the seven communities in the volatile Ugborodo kingdom, Delta state. In Rivers, there had been attacks on oil facilities by acclaimed supporters of the suspended governor of the state, Siminalayi Fubara.
Debt servicing, which Group Chief Economist and Managing Director, Research and Trade Intelligence of the African Export-Import Bank (Afreximbank), Dr Yemi Kale, described as a major concern about the rising debt profile, may also add pressure to the monetary framework. In the fourth quarter of last year, Nigeria spent $1.08 billion to service foreign debt, a modest rise from the previous quarters’ spending.
Sadly, the overall debt profile continues to grow, hitting N144.7 trillion as of Q4 of last year – a year-on-year leap of about 50 per cent. The quarterly growth has been consistently high, sending shockwaves through the country’s debt sustainability.
At the Vanguard Economic Summit yesterday, Kale pointed to insecurity as one of the crises the fiscal authority must address to complete the monetary efforts to stabilise the market.
The rising uncertainty, the former Statistician-General of Nigeria said, presented a set of constraints such as unreliable revenue forecasting due to volatile commodity prices, exchange rate fluctuations and inconsistent tax performance. The government, in response to these, often shifts toward reactionary short-term and poorly thought-out or badly implemented populist interventions, which often lead to monetary financing to bridge the fiscal gaps.
The scenario painted by the economist resonates with the crisis of the last decade when the legal limit of the ways and means (W&M) financing was ignored and the CBN overdraft spiked to about N30 trillion, a decision that complicated the FX and inflation crisis and overstretched the monetary limit.
While the short-term measures may provide temporary relief, Kale insisted, they carry significant long-term costs with dire consequences for economic survival.
“They exacerbate fiscal deficits, undermine macroeconomic stability and erode the credibility of public institutions. Just as importantly, such reactive policies can crowd out productive investment, distort incentives and reduce the confidence of both domestic and international investors. In effect, the attempt to manage volatility and curtail economic hardship through short-term politically expedient means often ends up entrenching it,” he noted.
Supporting Oye’s position on a more cautious approach to economic reforms, Kale noted: “What is particularly concerning in the Nigerian context is that, in many cases, the disruption is not an unanticipated external shock beyond the government’s control. Often, the hardship stems from policies introduced by the state itself. These are not unanticipated events—they are planned decisions.
“Yet even then, despite the policies being needed, the necessary safeguards are either absent, poorly implemented, or deprioritized. In some instances, the likely socioeconomic impact is understood, but there is insufficient political will, fiscal space or administrative capacity to do what is required to protect the most affected. And in Nigeria’s case, the most affected constitute the majority of the population.”
Political leaders have a rare opportunity in times of crisis to demonstrate their ingenuity and courage, which sometimes end up giving their countries a chance to break limits. For Kale, the current crisis calls for a shift toward anticipatory governance “where policies are not only designed to respond to crises but to foresee and mitigate them before they inflict widespread harm”.
And while the current reforms are important to wade through the crisis, he said people must be at the centre of the process. The reforms as necessary as they are, the President of Nigeria Guild of Editors and Vanguard Editor, Eze Anaba, said present both opportunities and challenges that require urgent responses.
