In an interview with journalists in Lagos, Economist Dr. Ayo Teriba, the CEO of Economic Associates, has urged the federal government of Nigeria to boost its foreign reserves in order to stabilize the Naira and slow down growing inflation. He identified the country’s declining reserves as a major factor behind the main causes of the currency’s persisting depreciation, the economic inefficiencies that have exacerbated inflationary pressures. Dr. Teriba recommended that the government adopt a strategy similar to that of Saudi Arabia by selling stakes in state-owned enterprises to generate foreign exchange inflows.
He specifically pointed to assets such as the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Liquefied Natural Gas (NLNG) as potential sources of substantial forex earnings. The economist asserted that partial Privatization of these state-owned businesses would increase their value, offer instant funds to strengthen reserves, and lessen Nigeria’s dependency on foreign borrowing. The call comes as the country grapples with economic challenges, including a weakening naira, declining foreign investment, and mounting debt obligations.
Strategic asset sales as a solution for economic growth.
Nigeria’s external reserves, which are a vital economic buffer, have been further strained by declining foreign exchange inflows, growing debt servicing costs, and ongoing exchange rate volatility. The cost of goods and services has increased due to inflation, which has been made worse by the naira’s depreciation versus the dollar. Many businesses have found it difficult to handle the growing cost of foreign exchange, particularly those that rely on imports. Experts have noted that stabilizing the external reserves will lessen these economic challenges and rebuild trust in the financial system.
Dr. Teriba’s suggestion aligns with global patterns where governments increase budgetary and Economic Stability by extracting value from public assets. He pointed out that by selling a portion of its oil behemoth, Saudi Aramco, Saudi Arabia was able to raise billions of dollars, greatly bolstering its financial position. He maintained that Nigeria might follow suit by providing foreign Investors with ownership in significant state-owned businesses, drawing in foreign Investment while maintaining strategic control over vital domestic resources.
Fluctuations and recovery trends in Nigeria’s external reserves.
As Nigeria navigates its economic dilemma, the economist advised the government to give priority to policies that increase foreign exchange inflows and decrease outflows. The robustness of the financial system as a whole, investor confidence, and economic stability all depend on a well managed external reserve. It should also be noted that Nigeria’s foreign reserves had increased by a significant $5.57 billion in just six months, from $33.04 billion on April 8, 2024, to $38.61 billion by October 3, 2024. This shows how resilient the nation’s external position is in the face of persistent external factors and global economic challenges.
Data from The Central Bank of Nigeria (CBN) showed that starting at $33.04 billion on April 8, 2024, the reserves initially fluctuated, indicating the economic pressures of the time. By May 3, 2024, reserves had dipped to $32.30 billion, signaling a momentary tightening in foreign exchange liquidity, likely influenced by global market dynamics, including the uncertainties surrounding the oil market and foreign capital outflows. However, the reserves began a steady recovery by mid-June, reaching $32.74 billion on June 3, 2024. This early summer period saw some resilience in Nigeria’s foreign reserve levels as external pressures began to ease.
Related Article: Foreign Reserves Increase, Naira Depreciates
Oil prices, which play a pivotal role in Nigeria’s foreign exchange earnings, saw a recovery, contributing to the gradual replenishment of reserves. By July 8, 2024, reserves had increased to $35.05 billion. Over this six-month period, Nigeria’s reserves grew by $5.57 billion, a critical milestone in the country’s macroeconomic stability. This reserve accumulation offers a stronger buffer against external shocks, improves foreign exchange liquidity, and provides the CBN with greater leverage in managing exchange rate volatility. The accumulation also signals increased resilience to potential external pressures, such as rising global interest rates and potential capital flight from emerging markets.