Nigeria’s FX reserves to fall in 2022

The World Bank has said that Nigeria’s forex exchange reserve will fall in 2022 as the Central Bank of Nigeria plans to clear about $1.7bn in FX backlog to foreigners and FX forward contracts.

The global bank stated that the nation’s reserves rose to $41.3bn at the end of 2021, which offered it an opportunity for exchange rate adjustment.

In its ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual,’ the global bank said, “Boosted by higher oil exports, International Monetary Fund’s Special Drawing Rights allocation in August 2021, and a Eurobond issuance in September 2021, gross official reserves rose to $41.3bn (7.4 months of imports) at the end of 2021; offering an opportunity for exchange rate adjustment.

“Nigeria issued additional Eurobonds for $1.25bn in March 2022. However, gross FX reserves are projected to decline during 2022, as the CBN is expected to clear the FX backlog to foreigners (estimated at $1.7bn as of end-October) and FX forward contracts.”

It further said foreign direct inflows into the nation were less than one per cent of Gross Domestic Product in 2021 despite higher oil prices which should have driven portfolio investments into the nation. It added that Nigeria’s current account is expected to strengthen in 2022.

The World Bank said the nation’s current account improved in 2021 as a result of its economic recovery from COVID-19 and further improvement is expected in 2022 due to increases in oil prices, remittance inflows, and non-oil exports.

It said, “In 2021, the current account deficit narrowed from 3.8 per cent of GDP in 2020 to 0.4 per cent in 2021, driven by an increase in exports stemming from the rebound in oil prices.