In the second quarter of 2024, Nigeria’s net foreign exchange (forex) inflows increased significantly, indicating a noteworthy improvement in the country’s forex dynamics despite persistent currency concerns.
According to data from the Central Bank of Nigeria (CBN), net foreign exchange inflow increased by 49.39% to $17.18 billion in Q2 2024 from $11.50 billion in the previous quarter.
This $17 billion gain is due to increased inflows and decreased outflows from both official and independent sources.
Forex Inflow Breakdown
According to CBN data, foreign exchange inflows into the Nigerian economy increased from $22.26 billion in Q1 2024 to $24.55 billion in Q2 2024.
A significant amount of the influx came from autonomous sources, which were the main drivers of this increase. Important information includes:
In the second quarter, inflows through autonomous channels increased by $1.95 billion, from $14.17 billion in the first quarter to $16.12 billion.
Forex inflows are still largely driven by autonomous sources, such as remittances, private capital inflows, and other private-sector transactions.
Additionally, the CBN’s foreign exchange inflows rose somewhat from $8.09 billion in Q1 to $8.43 billion in Q2, demonstrating the institution’s proactive efforts to stabilize the FX market through efficient inflow and outflow management.
The rise in autonomous inflows indicates increased forex liquidity from market-driven sources, which also shows how resilient private sources have been in the face of Nigeria’s forex difficulties.
Drop In Foreign Exchange Outflows
Higher inflows were accompanied by a dramatic decline in foreign exchange outflows from the Nigerian economy, which further increased net inflows.
From $10.77 billion in Q1 to $7.37 billion in Q2, total outflows decreased by 31.51%.
Outflows of foreign currency through the CBN fell sharply from $8.92 billion in Q1 to $5.71 billion in Q2, a 36.06% decrease. This decrease suggests stricter CBN currency management, which might be an attempt to limit capital flight and prioritize necessary dollar allocations in the face of persistent demand pressures.
Autonomous source outflows also saw a slight decline, dropping 8.79% from $1.82 billion in Q1 to $1.66 billion in Q2. This may indicate tighter capital flow regulations or a decline in the private sector’s demand for foreign currency.
Nigeria’s net foreign exchange inflow situation significantly improved as a result of the combined effects of higher inflows and lower outflows. In Q2 2024, net inflow increased from $11.50 billion in Q1 to $17.18 billion, a 49.39% increase.
The main driver of the increase was autonomous sources, which reported a net inflow of $14.46 billion compared to $12.35 billion in the prior quarter.
Additionally, the CBN changed its stance from a $0.85 billion net outflow in Q1 to a $2.72 billion net inflow in Q2.
Exchange Rate Depreciates Despite Forex Gains
Nigeria’s currency rate is still under pressure to depreciate, notwithstanding net foreign exchange inflow increases.
In the second quarter of 2024, the average exchange rate at the Nigerian Foreign Exchange Market (NFEM) fell 5.86% to N1,385.96 per US dollar from N1,304.72 per dollar in the first quarter.
But since the end of Q2, the value of the Naira has declined even more, with the parallel market rate reaching about N1,750 per dollar and the official exchange rate heading near N1,650 per dollar.
Market watchers blame supply issues and heightened demand pressures for this continuous decline, especially in the retail currency market.
Despite the increasing net foreign exchange inflow, suppliers are allegedly still setting prices as supply becomes more limited, which leads to an adverse exchange rate trajectory.
