- The CBN said diaspora remittances increased by $172 million between April and May 2024
- The increase may be a pointer that CBN’s policies on diaspora remittances may be paying off
- However, the country’s debt profile is rising too, raising questions about debt sustainability and the cost of servicing debts
According to the Central Bank of Nigeria (CBN), Nigeria's diaspora remittances increased by $172 million, representing 90 per cent of the total, from $193.31 million in April to $365.44 million in May 2024.
In January, remittances stood at $138.56 million, decreased by $99.42 million to $39.14 million in February, and increased to $104.90 million in March. In April and May, $193.31 million and $365.44 million, respectively, were remitted to the country’s coffers from the diaspora.
According to the data, remittances increased by 163 per cent between January and May 2024 due to reforms and policies to shore up foreign currency inflows.
In the first quarter (Q1) of the year only, a total of $282.62 million was remitted into the country, which is an $18.96 million or 6.28 per cent decrease when compared to the $301.57 million recorded in Q1 2023.
CBN’s policies to improve diaspora inflows may be paying off
Since his appointment in September 2023, CBN governor Olayemi Cardoso has rolled out many policies aimed at boosting foreign exchange (FX) liquidity and enhancing diaspora inflows through formal channels.
To allow for a flexible currency quoting and to address suspected cases of FX speculations and hoarding, the CBN, in January removed the exchange rates caps quoted by International Money Transfer Operators (IMTOs).
The policy required IMTOs to quote rates within an allowable limit of -2.5 per cent to +2.5 per cent around the previous day’s closing rate of the Nigerian FX market.
This was followed by revised operational guidelines that required IMTOs to have a minimum operating capital of $1 million for foreign companies and the naira equivalent for those operating within the country. The previous requirement was N50 million and N2 billion for foreign and Nigerian IMTPs, respectively. The guideline also stipulated an increase in licence application fees of IMTOs from N500,000 to N10 million. These were aimed at strengthening the sector’s operational and financial capacities.
The CBN had also told banks and IMTOs to halt dollar payments of inbound transfers to customers in Nigeria.
In a revised guideline to IMTOs and banks on January 31, 2024, the CBN said all inbound money transfers to Nigeria will be paid only in Naira through a bank account or in cash at the prevailing rate in the Nigerian FX market.
It added that transfers above the Naira equivalent of $200 must be accredited to the recipient’s account number, while Naira cash payment equivalents for amounts below $200 will require an acceptable means of identification, such as an international passport, driver’s licence, national identity card, or INEC Permanent Voters Card.
The guideline also prohibited banks and fintechs from operating IMTO services, but they could act as agents.
Not done yet, the CBN, in May 2024, granted an approval-in-principle (AIP) to 14 IMTOs to improve foreign currency remittance through formal channels, a target which the CBN governor, Olayemi Cardoso, recently said is achievable within a year.
Cardoso had said, “We have had very productive discussions with leading IMTOs where we collectively committed to doubling remittance flows through formal channels into Nigeria in the immediate short to medium term.
“We are wasting no time driving progress to remove any bottlenecks hindering flows through formal channels permanently. We have a determined pathway and a sequenced approach to tackling all challenges ahead, working hand in hand with key stakeholders in the remittance industry.”
In a statement announcing the AIP, CBN’s acting Director of Corporate Communications, Hakama Sidi Ali, said, “This will spur liquidity in Nigeria’s Autonomous Foreign Exchange Market (NAFEX), augmenting price discovery to enable a market-driven fair value for the Naira.”
On Monday, June 24, the apex bank also granted IMTOs access to Naira directly from the CBN window or through Authorised Dealer Banks (ADBs) to settle transactions for the sale of foreign exchange (FX) in the market.
It said the measure is part of its commitment to enhancing local currency liquidity, ensuring smooth functioning of the FX markets, improving formal remittance channels and “widening access to local currency liquidity for the settlement of diaspora remittances.”
Remittances are rising but debts are piling
However, as the country’s diaspora remittance is increasing, so are debts. Nigeria’s debt increased by 24.99 per cent on a quarter-on-quarter basis to reach N121.67 trillion as of March 31, 2024.
Nigeria’s public debt stock rose from N97.34 trillion ($108.23 billion) in the fourth quarter (Q4) of 2023 to N121.67 trillion ($91.46 billion) in Q1 2024.
The Debt Management Office (DMO) said external debt increased to N56.02 trillion ($42.12 billion) in the first quarter (Q1) of 2024 from N38.22 trillion ($42.495 billion) recorded in as of December 31, 2023, representing a 46.57 per cent increase.
Domestic debt on the other hand rose to N65.65 trillion ($49.35 billion) in Q1 2024 to N59.12 trillion ($65.73 billion) recorded as of December 31, 2023, indicating an 11.05 per cent increase.
DMO, in its Nigerian Domestic and Foreign Debt Report for Q1 2024, released on Thursday, June 20, said the amount is for external and domestic debts owed by the Federal Government, the 36 states and the Federal Capital Territory (FCT).
Increasing government borrowing amid huge debt profile worrisome
Despite the country’s burgeoning debt profile, the Federal Government hasn’t stopped borrowing to fund projects and reforms, which has risen to the tune of N20.1 trillion under the one-year administration of President Bola Tinubu.
The country’s huge debt profile raises concerns about increased pressure on inflation, higher borrowing costs for businesses, gulping of the country’s revenue and cost of debt servicing.
With regard to debt servicing, the government spent $15.55 billion to service debts between 2019 and 2024, according to the CBN. In the five months between January and May 2024, Nigeria spent $2.18 billion on debt service.
There are also concerns about debt sustainability that may lead to debt trap or default as already analysts have predicted that Nigeria’s debt servicing will escalate to $400 million to reach $5.2 billion by 2026.
Again, it is believed that the huge borrowings have not translated into economic growth and development and poses significant risk of economic stagnation and higher fiscal vulnerabilities.
Diaspora remittances to the rescue
Analysts have also noted that increasing diaspora inflows may be the way to rescue from the doldrums of debts as the remittances have the potential to increase household incomes, improve livelihoods and stimulate economic development.
Whispers, a publication of Financial Derivatives Company (FDC), in its June 26 report, said the country could benefit from diaspora remittances.
It said, “Although lower borrowing costs could free up cash to provide critical infrastructure, it remains insufficient to alleviate Nigeria’s revenue woes substantially. This indicates the need to diversify the government’s revenue base.
“One such option is harnessing and improving diaspora remittances, which have grown 27 per cent in the last two years and contributed to dollar revenues.
“In this light, Nigeria can learn from Senegal and Ethiopia, which leverage remittances for infrastructure, education, healthcare and entrepreneurship.”
“APC Impact?” Nigeria’s economy drops to 4th largest in Africa, loses $315.8bn in 10 years
Meanwhile, TheRadar had reported that Nigeria’s economy lost $315.8 billion in the 10 years between 2014 and 2024. It fell from being the first largest economy in Africa to the fourth in the 10-year period.
Between 2023 and April 2024, Nigeria lost an estimated $122.2 billion, dropping from third to the fourth largest economy in Africa.
