The Central Bank of Nigeria (CBN) has reported a 2.97% decline in net foreign exchange inflow for the third quarter of 2024, falling to $14.46 billion from $14.89 billion in the previous quarter. Despite this quarter-on-quarter dip, the inflow reflects a substantial year-on-year increase of 75.91% compared to $8.22 billion recorded in Q3 2023.
Key Insights from the CBN Report
Foreign exchange inflows in Q3 2024 rose by 3.01% to $22.89 billion from $22.22 billion in Q2. This increase was driven by a significant 39.63% rise in inflows through official sources, which totaled $11.86 billion, up from $8.49 billion in Q2. However, autonomous sources saw a decline of 19.66%, contributing $11.03 billion compared to $13.72 billion in the preceding quarter.
Outflows also surged during the quarter, rising by 15.18% to $8.43 billion. Outflows through the CBN increased by 27.91% to $7.31 billion, while those from autonomous sources decreased by 30.06% to $1.12 billion.
As a result, net inflow through the economy declined to $14.46 billion, with net inflows through autonomous sources falling to $9.90 billion from $12.12 billion. However, the CBN recorded a net inflow of $4.55 billion in Q3 2024, reversing a net outflow of $2.78 billion in Q2.
Boost from Diaspora Remittances
Diaspora remittances significantly contributed to foreign exchange inflows. Between January and October 2024, remittances processed through International Money Transfer Operators reached $4.22 billion, nearly doubling the $2.62 billion recorded during the same period in 2023. On a monthly basis, remittances increased from $336 million in September to $402 million in October 2024.
CBN Governor Olayemi Cardoso attributed this growth to improved remittance systems, supportive government policies under President Bola Tinubu, and increased trust among Nigerians in the Diaspora.
Exchange Rate Dynamics and External Reserves
The Nigerian Autonomous Foreign Exchange Market experienced a 14.62% depreciation in the naira’s value, with the average exchange rate declining to N1,588.64/$ from N1,385.96/$ in Q2 2024. The depreciation was attributed to increased demand pressure.
Despite this, Nigeria’s external reserves rose to $39.29 billion by the end of September 2024, up from $34.76 billion. This level of reserves provides coverage for 8.91 months of imports for goods and services or 13.34 months for goods alone.
Inflation and Economic Projections
Inflation remained a critical challenge, with the rate standing at 34.60% in November 2024, up from 33.88% in October. The rise was primarily driven by food and energy costs. Projections for December inflation remain mixed but are not expected to meet the CBN’s earlier projection of 21.4% in its 2024 macroeconomic outlook.
The CBN anticipates that inflation will stay elevated in the final quarter of the year due to ongoing policy reforms that have increased energy and transport costs. However, measures such as stable foreign exchange rates, food harvests, and contractionary monetary policies could help moderate the inflationary trend.
Fiscal and External Sector Outlook
The CBN’s report expressed optimism about Nigeria’s fiscal outlook in the near to medium term, citing the positive impact of fiscal reforms on revenue collection and a reduction in fiscal deficits. Risks to this outlook include volatility in global crude oil prices and Nigeria’s low production levels compared to its OPEC quota.
The external sector is expected to remain strong, supported by improvements in trade surplus, higher domestic crude oil production, and the full operation of the Dangote and Port Harcourt refineries. Global economic conditions, particularly easing inflation in advanced economies, are also expected to stimulate trade and investment.
Conclusion
Nigeria’s Q3 2024 foreign exchange performance reflects both challenges and opportunities. While net inflows have decreased quarter-on-quarter, the significant year-on-year growth and rise in diaspora remittances demonstrate positive trends. As the government continues to implement reforms and stabilize the foreign exchange market, the outlook for Nigeria’s economy remains cautiously optimistic, though inflation and global market dynamics pose ongoing risks.
