Nigeria's FX Reserves Surge $621m in 10 days, Renewing Investor Confidence

Samuel Mobolaji

Nigeria’s foreign exchange (FX) reserves surged by $621.2 million in just 10 days, from $36.24 billion on September 2, 2024, to $36.87 billion by September 12, 2024, following the successful issuance of a domestic dollar-denominated bond.

This remarkable boost, driven by Nigeria’s first-ever domestic dollar bond sale, highlights renewed confidence in the country’s financial system and marks a crucial moment in its efforts to shore up reserves amid economic challenges.

The domestic dollar bond, launched at a pivotal time for Nigeria, not only exceeded expectations with $900 million in subscriptions but also reaffirmed the growing confidence of both local and international investors in Nigeria’s economic prospects.

The $500 million bond, coordinated by the Africa Finance Corporation (AFC), was issued at a 9.75% annual coupon rate with a five-year maturity, drawing 180% subscription—far surpassing the original target.

The immediate effect of this bond sale was clear: FX reserves saw steady growth, with significant accumulation beginning in the first few days of the sale. Between September 6 and September 9, 2024, reserves rose by $250 million—a weekend surge that reflected strong demand and the rapid inflow of foreign capital. This trend continued through the second week of September, culminating in a $54.4 million increase in a single day on September 12, 2024.

The overwhelming investor interest is not just a financial boost but also a signal of rising confidence in Nigeria’s economic stability and growth potential. With the participation of a diverse investor base—including Nigerians in the Diaspora, local and international institutional investors—the bond sale further deepens Nigeria’s capital markets and enhances the liquidity of the financial system.

The bond, now available for trading on the Nigerian Exchange Limited (NGX) and FMDQ Securities Exchange, provides a crucial liquidity boost, helping Nigeria stabilize its currency and navigate global economic pressures.

This rise in reserves comes on the heels of a sharp decline in August 2024, when Nigeria’s FX reserves fell by $505.68 million—the steepest monthly drop since April 2024. As Nigeria faces ongoing economic pressures, including the need to defend the naira in the face of global currency fluctuations, the domestic dollar bond initiative is seen as a strategic move to attract foreign capital, fortify reserve levels, and build resilience against external shocks.

In an environment of tightening global financial conditions, Nigeria’s innovative approach to bolstering reserves via a domestic dollar bond sale has proven successful, marking a key moment in the country’s financial history. The overwhelming demand for the bond issuance underscores growing investor confidence in Nigeria’s economic management, making this a significant milestone for the nation’s fiscal and monetary policy.

The rise in reserves strengthens Nigeria’s ability to tackle inflation, stabilize the naira, and ensure the sustainability of its economic growth amid global uncertainties. The success of this bond issuance could pave the way for future capital market developments, positioning Nigeria as a more attractive investment destination in the long term.