Spike in Nigeria’s Forex Inflow, $14.5 Billion in 5 Months

The Central Bank of Nigeria (CBN) recorded a sharp increase in forex inflows for the first five months of the year. The inflows of $14.53 billion represented an increase of 121% over the $5.57 billion that came into the country from January to May 2016. These and other figures were included in the economic report for Q1 2017 which is available on the CBN website.

A detailed analysis of the central bank’s monthly economic reports indicated that its outflow of foreign exchange has increased slightly by $9.09 billion during the same period, amounting to a change of 5.8%. The net inflow of foreign exchange would then work out to $5.4 billion from January to May 2017. There was a 367% increase in net inflow on a year to year basis.

The CBN has been recording fluctuating foreign exchange inflows since its February 2017 peak of $5.1 billion. It fell to $1.63 billion in March but increased slightly to $2.87 billion the next month only to dip once more to $2.26 billion in May. Foreign exchange outflow, on the other hand, has been rising steadily from January this year. January’s outflow was $1.18 billion, followed by $.1.3 billion, $1.67 billion, $2.16 billion, and $3.02 billion in the next four months consecutively.

The month of May saw the first net outflow of foreign exchange from the country, amounting to $761 million. CBN attributed this to the drop in crude oil prices to $51.04 from $52.9 per barrel in April. The main reason for the drop in oil prices was increased supply by countries not belonging to the Organization of Petroleum Exporting Countries (OPEC) and also rise in the United States’ level of shale oil production.

OPEC had committed to curtailing the supply of oil, and this had driven crude oil prices up in the first quarter of 2017, resulting in increased inflows to Nigeria and other OPEC member countries. Nigeria has committed to limit oil output to a very reasonable cap of 1.8 million barrels per day.

Receipts from the oil sector made up 15.9 % of the country’s total for the first five months of the year and amounted to $2.38 billion. In comparison, this sector contributed $1.97 billion in Q4 2016 and $2.48 billion in the period January to May 2016.

There was an 11.6% drop in non-oil public sector inflow when compared to Q4 2016. This has had a major impact on the overall forex inflows because at $4.21 billion it represents 28.1% of the total. Even so, this was a hefty 188.4% increase year on year. There was also a large drop of 14.1% in autonomous inflow over Q4 2016. This impacted the overall figures because this sector makes up 56.1% of the total.

While the CBN’s foreign exchange inflows dropped 21.4% from April’s level to $2.26 billion for May, it was nevertheless 27% higher than the figure for May 2016.

There have also been a number of interventions on the forex supply in the country. Outflows through the central bank have occurred by foreign exchange special payments and drawings on letters of credit. There have also been inter-bank utilizations in addition to external servicing of debts.

The external sector has performed very well in the first four months of the year. Nigeria has achieved a surplus in the overall balance of payments which amounts to 3.1% of the country’s gross domestic product (GDP). In comparison, the balance of payments was 0.6% of the GDP in Q1 2016.

Nigeria has been facing acute shortages of foreign exchange, with the problem being exacerbated by a bustling black market in forex.