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Nigeria’s Net Foreign Assets Drop To Lowest Since 2015

Nigeria’s Net Foreign Assets Drop To Lowest Since 2015

Nigeria’s Net Foreign Assets (NFA) dropped to N4.8 trillion in July 2022 the largest month-on-month drop since 2019 and the lowest level since 2015.

The data was obtained from the website of the Central Bank of Nigeria (CBN) which tracks Nigeria’s money supply since 1960.

The Net Foreign Assets represents the difference between the foreign assets owned by the central bank and the banking system and the liabilities respectively.

A positive Net Foreign Assets indicates the central bank and commercial banks have more foreign assets (liquid) when compared to foreign liabilities.

Nigeria’s Net Foreign Assets Drop To Lowest Since 2015

In the month of July, Nigeria’s net foreign assets went from N7.1 trillion to about N4.8 trillion representing a N2.24 trillion drop month on month.

The last time Nigeria’s net foreign assets fell below N5 trillion was in October 2015 when it fell to N4.6 trillion.

Nigeria’s NFAs have oscillated between N6 and N10 trillion since December 2019 when the country recorded the last major drop.

In December 2019, Nigeria’s NFA went from N14.1 trillion to about N5.8 trillion preceding a massive outflow of forex from the country as oil prices dipped and the world braced for the Covid-19 pandemic.

NFAs had fallen to N7.56 trillion in March 2022, a ripple effect of the global crisis caused by the Russia-Ukraine fallout, and has since then continued on a downward trend.

The central bank data did not reveal the reasons for the drop in NFA’s however, sources who spoke to Nairametrics suggested it could be as a result of higher foreign liabilities.

Foreign assets often relate to central bank reserves and bank loans denominated in foreign currencies.

However, a large component of these balances is from central bank reserves and since reserves did not change significantly the reason points to liabilities.

A rise in foreign liabilities could then mean the central bank or banking system borrowed more from the debt market either via bonds or just direct on-lending facilities.

Reacting to the drop experienced in December 2020, the CBN’s monetary policy committee reported in March 2020 that the drop reflected a “decline in securities” outside of shares and currencies.