Nigeria’s external reserves face downside risk due to subsidy removal – CBN

The Central Bank of Nigeria (CBN) has warned that the removal of fuel subsidies, coupled with lower import bills and increased external debt servicing, could negatively impact the growth of Nigeria’s external reserves by 2024/2025.

In its Monetary, Credit, Foreign Trade and Exchange Policy guidelines for fiscal years 2024/2025, the CBN highlighted several potential challenges but also projected positive economic growth, driven by policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and the implementation of the Finance Act 2023 and the 2022-2025 Medium-Term National Development Plan (MTNDP).

The CBN said, “The outlook for Nigeria’s external sector in 2024/2025 is optimistic, buoyed by favorable terms of trade, sustained crude oil prices, and improvements in domestic oil production.

However, factors such as lower crude oil earnings, fuel subsidy removal, rising import bills, and increased debt servicing obligations pose risks to external reserve growth.”

The bank also warned that persistent monetary tightening by central banks in advanced economies could trigger capital outflows.

Despite these challenges, the CBN remains optimistic about Nigeria’s economic growth prospects for 2024/2025. However, risks like rising energy prices due to the ongoing Russia-Ukraine war, security concerns, and infrastructure deficits could undermine this growth trajectory in the short to medium term.