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MASSIVE DROP: Nigeria’s Net Foreign Assets plunges by 91% in September, according to latest CBN data

Nigeria’s Net Foreign Assets (NFA) plummeted by 91.7%, settling at N591 billion, as revealed by the Central Bank of Nigeria’s (CBN) most recent monetary statistics.

This sharp decline follows a fluctuating trend that began in June 2023.

At that time, Nigeria’s NFA rose to N11 trillion, up from N4.9 trillion, but subsequently dwindled to N9.2 trillion, N7.1 trillion, and finally to N591 billion between July, August, and September, respectively.

Net foreign assets essentially serve as a balance sheet entry for a nation’s central bank, reflecting the value of the country’s foreign holdings comprising foreign currency, bonds, and equities against its foreign liabilities.

  • In essence, the NFA acts as a balance sheet item for a country’s central bank, showcasing how much it owns in assets versus how much it owes.

The recent data indicates that Nigeria’s foreign liabilities may have surged in September, potentially due to changes in how the CBN accounts for the nation’s foreign currency holdings

A recent research report on the blog of NewsTimes contributor Walle Smith suggests the drop may have been due to a consolidation in foreign liabilities.

  • “..the most concerning point from the September release was the drop in net foreign assets to NGN591billion (down 86% from the end of 2022) since surging to a 43-month peak in June 2023 of NGN11trillion following the FX adjustments.”
  • The pattern over the subsequent months has been of a steady decline which would suggest either a drop in foreign assets or the consolidation of foreign liabilities.
  • My inclination is towards the latter and my sense is the CBN which tweaked accounting rules in 2017 to shift FX swaps as an off-balance sheet (vs prior norm of on-balance sheet) is now, under pressure from the Special Presidential Auditor, moving this item back to an on-balance sheet definition.
  • This would rightly position the CBN as net short USD and would be consistent with the limited ability to intervene across FX markets.”

It is important to note that the central bank has yet to explain why the money supply dropped in such a drastic manner.

What this means

The staggering drop in Nigeria’s NFA from N7.1 trillion in August to N591 billion in September raises serious concerns and necessitates an investigation into the underlying factors.

  • A depleted NFA can contribute to currency depreciation, as it signals the central bank’s reduced capability to intervene in the forex market, thereby stabilizing the currency.
  • This, in turn, can ignite inflationary pressures and lead to higher interest rates, which may explain the ongoing pressure on the exchange rate.
  • It could also trigger a reduction in capital importation due to lower investor confidence in their ability to repatriate their money.
  • A higher NFA could also provide challenges to Nigeria’s balance of payment leading to currency account deficits.

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