Forex outflow hits $1bn with loan repayments, capital reversals — CBN
The Central Bank of Nigeria has reported that Nigeria experienced a total of $1 billion in capital outflows in April 2024.
According to its April 2024 Monthly Economic Report released on Sunday, this figure represents a significant increase of 35.14 per cent from the $740 million recorded in the previous month.
The report stated that the rise was largely driven by capital reversals, which accounted for 78 per cent of the total outflow, amounting to $780 million. This sum exceeded the total foreign capital outflow recorded in May 2024.
The report also noted that loan repayments significantly contributed to the outflows, increasing from $120 million in March to $160 million in April.
The remaining outflow comprised dividend repatriation, which decreased to $40 million from $90 million in the previous month.
Capital reversals refer to the phenomenon where foreign investors withdraw or repatriate their investments from a country, often due to economic instability, policy changes, or more attractive investment opportunities elsewhere. This process can involve selling stocks, bonds, or other financial assets and moving the capital back to the investor’s home country or another destination perceived as safer or more profitable.
When capital reversals occur, there is increased demand for foreign currency as investors convert their naira holdings into dollars or other currencies before repatriating their funds. This exerts downward pressure on the naira, potentially leading to further depreciation of the currency.
The report noted, “Capital outflow increased due to capital reversals and higher loan repayments. Capital outflow rose to $1 billion from $740 million in the preceding month. A breakdown showed that capital reversals increased to $780 million from $530 million.
“Repayment of loans rose to $160 million from $120 million. Dividend repatriation, however, decreased to $40 million from $90 million. In terms of the share of total outflow, capital reversals constituted 78 per cent, followed by loans and dividends at 16 per cent and 4 per cent, respectively. Other forms of outflow accounted for the balance.”
Our correspondent also observed that capital outflows fluctuated significantly this year, peaking at $1.31 billion in February 2024, before declining to $740 million in March and rising again to $1 billion in April 2024.
The most substantial component of these outflows was capital reversals, particularly pronounced in February 2024, which coincided with the highest overall outflow.
In April, Nigeria’s foreign exchange reserves fell by $2.16 billion in 29 days amid the CBN’s efforts to stabilise the naira. The FX reserves plummeted to their lowest level in six years on April 15, 2024.
The FMDQ Markets Monthly Report for April indicated that spot FX market turnover in April 2024 was $9.12 billion (N11.14 trillion), representing a month-on-month (MoM) decrease of 27.68 per cent ($3.49 billion) from the turnover recorded in March 2024 ($12.61 billion).
