In the third quarter of the year, Nigeria encountered a 2.97% decline in net foreign exchange inflow, which decreased from $14.89 billion to $14.46 billion. This development, highlighted in the Central Bank of Nigeria’s recent economic report, presents an opportunity for stakeholders to assess the factors contributing to this change.
When compared to the third quarter of 2023, the net foreign exchange inflow has increased significantly, showing a remarkable 75.91% rise from $8.22 billion to $14.46 billion. Additionally, total foreign exchange inflow for Q3 increased by 3.01%, reaching $22.89 billion, compared to $22.22 billion in the previous quarter. This suggests a positive trajectory in official sources of inflow, even as autonomous sources have experienced a decline.
The report indicates that inflows through banks saw an impressive rise of 39.63%, reaching $11.86 billion, up from $8.49 billion in the prior quarter. On the other hand, inflows from autonomous sources fell by 19.66% to $11.03 billion from $13.72 billion. Moreover, foreign exchange outflows rose by 15.18%, amounting to $8.43 billion during the same period. It is notable that outflows through banks increased by 27.91% to $7.31 billion, while those from autonomous sources decreased by 30.06% to $1.12 billion.
As a result, the net foreign exchange inflow experienced a modest decline of 2.97%, settling at $14.46 billion. Additionally, net inflows from autonomous sources decreased to $9.90 billion from $12.12 billion. However, a notable net inflow of $4.55 billion was recorded through banks, contrasting with a net outflow of $2.78 billion in the previous quarter.
During a recent meeting with the Senate Committee on Banking, Insurance, and Other Financial Institutions, Central Bank Governor Olayemi Cardoso shared positive news regarding diaspora remittances, which totaled $4.22 billion between January and October 2024, nearly doubling the $2.62 billion from the same period in the previous year. This growth, with monthly remittances increasing from $336 million in September to $402 million in October, can be attributed to improved efficiency in the remittance system, favorable policy impacts from President Bola Tinubu’s initiatives, and a growing sense of trust among Nigerians in the diaspora to support national development.
In the same quarter, the average exchange rate at the Nigerian Autonomous Foreign Exchange Market depreciated by 14.62%, now standing at N1,588.64/$, down from N1,385.96/$ in the second quarter of 2024. This change can be seen as a reflection of heightened demand pressure. Furthermore, external reserves increased to $39.29 billion from $34.76 billion at the end of September 2024, providing a solid buffer to cover 8.91 months of imports for goods and services, or 13.34 months for goods alone.
Looking forward, the Central Bank projects that inflation is likely to remain elevated for the last quarter of 2024. This expected rise is closely tied to ongoing policy reforms that are affecting both energy and transport costs. Nevertheless, the Central Bank’s proactive contractionary measures, coupled with relatively stable conditions in the foreign exchange market and the harvest of key food staples, could play a significant role in moderating inflation.
The fiscal outlook appears promising for the near to medium term, driven by sustained fiscal reforms that are producing positive outcomes, as evidenced by decreasing fiscal deficits and improved revenue collection. However, it is important to remain vigilant regarding the potential risks posed by global crude oil price volatility and production levels that may fall short of OPEC quotas. The external sector is positioned for strength in 2024, supported by enhanced trade surpluses, increased domestic crude oil production, and the full operational capacity of the Dangote and Port Harcourt refineries. Additionally, favorable global economic conditions, with easing inflation in advanced economies, are likely to stimulate trade and investment opportunities.
As of November, Nigeria’s inflation rate stands at 34.60%, primarily driven by rising food and energy costs, reflecting a 0.72% increase from October’s rate of 33.88%. This provides an opportunity for policy makers to continuously adapt strategies to address these economic challenges while fostering growth and stability.