By Chinwendu Obienyi
Despite global economic hiccups, the Central Bank of Nigeria (CBN) has reported a sharp rise in international payments, totaling $3.31 billion in the first five months of 2024. This represents a significant 30.8 per cent increase from the $2.53 billion recorded during the same period in 2023, according to recent data released by the apex bank.
These international payments, which include foreign debt servicing, remittances, and payments for goods and services, play a critical role in maintaining Nigeria’s economic stability. They directly impact the nation’s foreign reserves, influencing both the exchange rate and broader economic conditions.
The surge in payments was largely driven by a steep 96.3 per cent increase in foreign debt servicing, which alone accounted for $2.19 billion, or 66.1 per cent of the total payments. This spike underscores the government’s efforts to meet its international financial obligations amidst a challenging economic landscape.
In addition to debt servicing, direct remittances rose by 28.5 per cent year-on-year to $841.37 million, reflecting a growing demand for international services by Nigerian residents. However, payments for letters of credit saw a sharp decline of 63.3 per cent quarter-on-quarter, dropping to $279.99 million from $762.03 million in the same period of 2023. Financial experts at Cordros Research attributed this decrease to weakened consumer demand, driven by high inflation and the depreciation of the naira.
Looking ahead, analysts expect international payments to remain elevated as the federal government continues to service its maturing debts, particularly those owed to multilateral and bilateral lenders. The ongoing repayment efforts are likely to sustain the pressure on Nigeria’s foreign reserves.
“Trade imports are expected to pick up in the short term,” analysts noted, citing the recent removal of import duties on certain agricultural products by the federal government, a move that could further increase international payments.
Meanwhile, Nigeria’s foreign exchange reserves experienced modest growth, rising by $12.06 million week-on-week to reach $36.85 billion. This improvement came alongside a 2.7 per cent appreciation of the naira, which closed at N1,574.20 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM). The strengthening of the naira was largely attributed to the CBN’s recent Retail Dutch Auction, which helped alleviate some of the pressures on the currency.
However, the total turnover in the FX market declined by 58.7 per cent week-to-date, falling to $472.67 million. Trades during this period were conducted within the N1,520.00/$1 to N1,628.00/$1 range. In the forwards market, the 1-month contract rate edged up slightly by 0.2 per cent to N1,622.10/$1, while the 3-month rate remained unchanged at N1,684.56/$1. The 6-month and 1-year contract rates declined by 0.9 per cent and 1.9 per cent, closing at N1,773.76/$1 and N1,959.58/$1, respectively.
Reflecting on these developments, analysts observed that while FX liquidity may remain tight in the short term, the naira is likely to trade with reduced volatility due to moderated demand pressures. The recent stability in the naira has also bolstered investor confidence, leading to increased foreign participation in the FX market.
“Despite ongoing challenges, the outlook for the naira appears more stable, with expectations of less volatility as demand pressures ease,” analysts concluded.