Fitch Ratings has expressed caution regarding the stability of Nigeria's foreign exchange market, indicating that efforts by the Central Bank of Nigeria (CBN) have not yet yielded the desired positive results. As of mid-October 2024, Nigeria's gross foreign exchange reserves have risen to $39 billion, which is expected to cover 6.1 months of external payments by the end of the year. However, it is noteworthy that 25% of these gross reserves are tied up in foreign exchange swaps, which complicates the liquidity situation [1b091dcf].
The CBN has raised the monetary policy rate five times since February 2024, bringing it to 27.25%. This move is part of the bank's strategy to manage inflation and stabilize the naira. Despite these efforts, a shortage of forex supply continues to pressure the naira in both the black and official markets [1b091dcf].
An audit report by the Office of the Auditor-General of the Federation (OAuGF) revealed that $4.5 billion in Nigeria's Foreign Reserves between 2018 and 2019 cannot be accounted for. This report also highlighted an 'unsubstantiated' decline of over $8 billion in foreign reserves between 2019 and 2020, coinciding with the tenure of former CBN governor Godwin Emefiele, who is currently facing corruption charges [5a5dcf3a].
The findings from the audit raise serious concerns about the CBN's ability to maintain a stable exchange rate and call for transparency in the management of foreign reserves. The CBN has been urged to justify the missing funds, which further underscores the challenges facing Nigeria's economy [5a5dcf3a].
In addition to these issues, Nigeria's borrowing under President Muhammadu Buhari has surpassed the total foreign debts accumulated during the administrations of Obasanjo, Yar’adua, and Jonathan combined. Currently, only 8% of Nigeria's GDP is generated from taxpayers, compared to 36% in countries like the UK, US, Canada, and Germany. Experts suggest that enhancing tax compliance and integrating the informal economy into the formal sector are crucial for improving fiscal health [8b00890e].
The CBN plans to introduce an electronic FX matching platform starting December 1, 2024, in an effort to improve the forex market's efficiency. However, the ongoing challenges, including a decline in oil exports and the need for large-scale reforms, remain significant hurdles for the Nigerian economy. The IMF has projected that Nigeria's foreign reserves will drop to $24 billion in 2024 due to low crude oil exports and lack of new Eurobond issuances, further complicating the economic landscape [395b8a56].