Owing to reduced contributions from both local and foreign sources, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) dropped to $2.17 billion in September, data from the FMDQ revealed at the weekend.
The figure, when compared to $2.34 billion recorded in August, represents a 7.1% decline month-on-month (m/m) recorded in the reporting period.
The decline, according to the data, was driven by a broad-based shortfall across local (84.1% of total transaction value) and foreign (15.9% of total transaction value) inflows.
Analysing the breakdown provided, inflows from local sources dipped by 6.0% m/m to $1.83 billion as against $1.94 billion recorded in August due to declines across the Individuals (-53.1% m/m), non-bank corporates (-27.5% m/m) and exporters (-4.7% m/m) segments despite the more robust inflow from the CBN segment (+184.2% m/m), which cushioned the overall drop in local inflows.
Foreign inflows also declined, down 12.4% to $345.50 million, reflecting weak investor confidence, which has persisted due to FX liquidity constraints and broader economic uncertainties.
Over the short term, FX liquidity conditions are expected to remain strained, as the CBN is likely to limit interventions. This could further dampen market confidence and exert downward pressure on the naira.
There had been growing concerns over the state of the economy with the price of fuel, goods and services and transport soaring. Similarly, some multinationals have reportedly left the country, blaming the harsh operating environment and FX volatility for the reason for their exit.
Worse still, the statistical bulletin of the Central Bank of Nigeria (CBN) revealed that the debt service in H1 2024 made up 50% of the total expenditure of N12.17 trillion and a staggering 162% of the N3.73 trillion total revenue generated during the period.
Meanwhile, the naira depreciated by 3.4% week-on-week (w/w) to N1,631.21/$1, with reduced market turnover by 30.7%, amounting to $906.11 million as of October 3, 2024.
Although Nigeria’s FX reserves have been building for five consecutive weeks, increasing by $517.01 million to $38.58 billion, the forwards market signals continued pressure on the naira. Rates for the 1-month, 3-month, 6-month, and 1-year contracts all declined, indicating expectations of further depreciation.
Reacting to the development, economic analysts at Cordros Research, noted that the continued pressure on the naira is expected to persist in the short term, driven by elevated FX demand and limited supply-side interventions.
“Whilst we note the improved liquidity from increased FPI inflows, we think the naira is likely to face continued pressure as FX demand remains elevated”, they said.