The Central Bank of Nigeria (CBN) has expressed concerns over the country’s foreign exchange reserves, warning that they are at risk due to a combination of factors, including the removal of petrol subsidies, declining crude oil earnings, rising external debt servicing obligations, and increasing import bills.
In its *Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2024/2025*, released on September 17, the CBN highlighted the risks while also projecting overall positive economic growth for the period, supported by policies aimed at revitalizing the agriculture and oil sectors, as well as reforms in the foreign exchange market.
“The outlook for Nigeria’s external sector in 2024/2025 is optimistic, with expectations of favorable terms of trade due to a sustained rally in crude oil prices and an improvement in domestic crude oil production,” the CBN stated. It attributed this optimism to high crude oil prices, capital inflows, and remittances, bolstered by ongoing production cuts.
However, the CBN warned that lower crude oil earnings, the removal of fuel subsidies, higher import bills, and increased external debt servicing obligations could negatively impact the accumulation of external reserves. Furthermore, monetary policy tightening in advanced economies poses a risk of capital outflow, which could further weaken Nigeria’s external position.
Despite these risks, the CBN forecasts positive growth in Nigeria’s output for 2024/2025, supported by continued policy interventions in the agriculture and oil sectors, as well as the effective implementation of the Finance Act 2023 and the 2022-2025 Medium-Term National Development Plan (MTNDP).
The report cautioned that headwinds such as rising energy prices, driven by the ongoing Russia-Ukraine conflict, and domestic security and infrastructure challenges could undermine this growth trajectory in the short to medium term. Additionally, inflationary pressures are expected to remain high throughout 2024/2025, exacerbated by global supply chain constraints and exchange rate volatility.
“Domestic prices are expected to remain elevated, driven by global supply constraints and exchange rate pass-through, with security and infrastructural challenges further compounding inflationary pressures,” the CBN concluded.
