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IMF warns Nigeria’s foreign reserves could plummet to $24bn by 2024

IMF's latest country report unveils challenges ahead for Africa's largest economy amidst forex concerns

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In its recent country report for Nigeria, the International Monetary Fund (IMF) has sounded a cautionary note, forecasting a potential drop in the nation’s foreign reserves to $24 billion by 2024. This revelation signals looming forex challenges for Nigeria, Africa’s largest economy, as it grapples with financial uncertainties.

As of February 8, Nigeria’s external reserves stood at $33.12 billion, a significant figure that may dwindle in the coming years, according to the IMF’s projections. The fund anticipates a tough period ahead for Nigeria’s financial account, primarily driven by several factors including the absence of new Eurobond issuances, substantial repayments of existing funds and Eurobonds totaling $3.5 billion, and persistent portfolio outflows.

Despite a projected current account surplus, the IMF report suggests that officially reported reserves could decline to $24 billion by 2024, marking a notable setback. However, there is a glimmer of hope for recovery, with reserves expected to rebound to $38 billion by 2028 as portfolio inflows are forecasted to resume.

The IMF underscored a surplus in the current account during the first half of 2023, yet highlighted a significant decline in reserves. This decline has been attributed to decreased crude oil exports, stemming from issues such as oil theft and inadequate investment in essential upstream infrastructure.

Furthermore, profit repatriation from the oil sector witnessed a decline, albeit slightly offsetting the adverse impacts on the current account. Meanwhile, Foreign Direct Investment remains low, with an increase in portfolio outflows including equity and Eurobond repayments and repatriations.

The IMF also highlighted the Nigerian authorities’ lack of disclosure regarding comprehensive information on short-term foreign exchange liabilities, a critical factor for accurately calculating net international reserves.

This warning from the IMF comes amidst Nigeria’s grappling with stalled per-capita growth, rising poverty, and heightened food insecurity, exacerbating the country’s cost-of-living crisis. The IMF underscores the challenges stemming from low revenue collection, which has hampered service provision and public investment, contributing to headline inflation reaching 27 percent year-on-year in October.

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