Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun on Wednesday, disclosed that the country’s gross reserves are increasing organically following the government’s decision to refrain from defending the naira as previously done.
The minister made this known during a Nigeria fixed income meeting with foreign investors in Washington D.C where he emphasized the government’s commitment to transparency in managing Nigeria’s foreign reserves. Also speaking at the meeting, Olayemi Cardoso, Governor of the Central Bank of Nigeria, revealed that the country’s external reserves have risen to $40.2 billion as of October 2024, up from $38.4 billion reported in September.
Edun explained that the decision to allow the market to set the exchange rate for the naira, instead of the Central Bank of Nigeria (CBN) defending it, has led to the organic growth of the gross reserves. He pointed out that “The gross reserves are being built organically, mainly because we’re just not defending the naira, as used to happen in the past. A billion dollars every month just to defend the naira”.
With the new strategy, the minister noted that the federal government is allowing the market to play a greater role in setting the exchange rate for the naira. He noted that this shift has not only facilitated the organic growth of reserves but has also enhanced investor confidence.
“We’re allowing the market as much as possible to set the level for the naira, and we are building the buffers to improve that confidence and ensure that we have enough input cover.”
According to Edun, the government’s objective is to organically increase the supply of foreign exchange without relying heavily on interventions from the Central Bank of Nigeria (CBN). He stated that while the CBN may still intervene in the market occasionally, the primary aim is to achieve a stable exchange rate independent of central bank support.
“We’re trying as much as possible to improve our supply organically without the central bank having to put in money all the time. And so, we’re trying to get to a level where that stability is there without the central bank intervening or the market depending on the central bank.”
Edun emphasized the beneficial effects of foreign portfolio investment (FPI) on the economy, noting a surge in investor confidence, with many eager to increase their commitments to the Nigerian market. He also mentioned that the removal of fuel subsidies and the adoption of market-based pricing for petroleum have contributed to these positive changes.
