A report by the Bismarck Rewane– led Financial Derivatives, has stated that Nigeria need to urgently tap into the opportunities provided by the Eurobonds and Diaspora fund in addressing the reoccurring challenges faced by Naira, the Nigeria currency.
The Financial Derivatives stated this in its May edition of the Monthly report.
According to the report, the Naira has been under pressure because of Nigeria’s external imbalances caused by disruption in oil production, drop in oil prices, regulatory arbitrage, and speculative behaviour of market actors.
Other reason includes; negative trade balance (0.86% of GDP), which has put pressure on the Nigerian currency market.
On how Diaspora fund can be of immense benefits, the report noted that it will encourage remittances, attract diaspora investment, contribute to economic transformation and development, which in the long run will bring about developed infrastructure, promote good health care system, education and facilitate development.
According to the World Bank Report, Nigeria diaspora remittance was about $20 billion. It estimated that more than 90 percent of that did not get to Nigeria, they are being externalized.
The naira has a checkered history, it has witnessed a profound disruption in the past three decades and not yet a convertible currency.
The exchange rate of the naira is influenced by Economy, Politics and Policy.
According to the report, Nigeria’s balance of trade declined by 96% between 2022 and 2023, while Inflation soared to 33.2% in April 2024, the terms of trade was pegged at – 1.68.
However, Diaspora remittances declined by 5.7% between 2022 ($20.13 bn) and 2023 ($18.95 bn). It also noted that encumbered resources have fallen sharply which intensified the FX market pressure, with the Current account balance is $7.61bn, and Terms of trade moved from 39.3 to 33.2.
The report further note that the naira was overvalued before the FX reform that took place in June 2023, but it under-valuation occurred between July 2023 and December 2023.
Since January 2024, the naira has become overvalued exchange rate trajectory on a depreciation path.
According to Augusto, Co, Remittances have grown to become a significant source of external financing for most low and middle-income countries (LMICs), playing an increasingly important role in their economies.
In 2020, remittance flows to LMICs exceeded the flow of foreign direct investments (FDI) and overseas development assistance to LMICs (excluding flows to China) and served as a major lifeline to these vulnerable economies as they grappled with the adverse effects of the COVID-19 pandemic.
Global remittance flows, which increased by 5% to $831 billion in 2022, grow by a more modest 1% to $840 billion in 2023.
The anticipated moderation is hinged on the elevated cost of living in several advanced economies, including the United States of America (USA), the United Kingdom (UK), and the Eurozone, which accounted for almost half of global outward remittances in 2022.
The steady inflow of funds from the Nigerian diaspora reflects the strong bond between the diaspora community and their home country, fostering economic stability and contributing to economic development.
The increasing importance of remittances in supporting the country’s reserves has necessitated a better understanding of the dynamics of remittance flows into Nigeria.
