The Central Bank of Nigeria (CBN) has raised concerns over the country’s foreign exchange reserves, citing risks posed by the removal of petrol subsidies and declining crude oil revenues. According to the CBN’s latest data, Nigeria’s external reserves stood at $36.08 billion as of September 12, 2024.
In its newly released ‘Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the Fiscal Years 2024-2025,’ the CBN emphasized that the reduction in crude oil earnings, rising import bills, the end of the petrol subsidy, and increasing external debt servicing obligations could negatively affect the growth of external reserves during the period.
The report also noted that global monetary tightening by central banks in advanced economies further increases the risk of capital outflows from Nigeria.
Despite these challenges, the CBN remains optimistic about Nigeria’s external sector in 2024 and 2025, with hopes for a rebound driven by improved terms of trade, stable crude oil prices, and increased domestic oil production. Additionally, sustained crude oil prices, driven by production cuts and gains from capital inflows and remittances, are expected to support this positive outlook.
President Bola Tinubu officially ended the petrol subsidy on May 29, 2023. However, there have been ongoing debates regarding the reintroduction of the subsidy. On August 19, 2024, TheCable reported that Tinubu approved the use of the 2023 dividends from the Nigerian National Petroleum Company (NNPC) Limited to cover the subsidy. While NNPC initially denied the return of the subsidy, it later admitted to subsidizing petrol, with the federal government owing NNPC N7.8 trillion for petrol subsidies.
Furthermore, Agora Policy, an Abuja-based think tank, projected that petrol subsidies could reach an all-time high in 2024, after consuming N4.2 trillion from January to July 2023.
Rising Debt and Fiscal Threats
The CBN also highlighted that Nigeria’s fiscal performance is at risk due to increasing public debt, low crude oil production, and persistent insecurity. The bank warned that while the economy is projected to grow positively in 2024 and 2025, several downside risks, including global energy prices, infrastructural deficits, and the Russia-Ukraine conflict, could hinder growth.
Inflation is expected to remain high in 2024 and 2025, exacerbated by global supply chain issues and exchange rate pressures. In addition, persistent insecurity and infrastructure challenges could drive inflation further.
On the fiscal front, the CBN noted that recovery would depend on the successful implementation of the Finance Act 2023 and efforts to boost non-oil revenues. However, risks like low oil production, rising debt, and global economic uncertainties could significantly affect fiscal operations.
Nevertheless, the CBN projected that Nigeria’s financial sector would remain resilient, thanks to continuous monitoring of vulnerabilities and risks, including stress tests and risk mitigation measures.
