The World Bank has said that Nigeria’s foreign exchange (FX) market turnover remains largely dominated by interventions from the Central Bank of Nigeria (CBN) and inflows from foreign portfolio investors (FPIs), despite recent reforms aimed at liberalising the market.
This was contained in the World Bank’s latest Nigeria Development Update report entitled “Building Momentum for Inclusive Growth,” released on Monday.
According to the report, while overall FX turnover has improved following recent policy changes, the market is still heavily reliant on CBN interventions, often aimed at managing volatility and short-term foreign portfolio investment attracted by high yields and potential revaluation gains.
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“Although helpful as a source of FX, debt financing, and external adjustment, FPI flows are volatile, especially when they are short-term as is predominantly the case for Nigeria,” the report noted. “For full consolidation of the FX market, traditional sources of inflows such as oil exports and remittances must return consistently and substantially to the official window.”
The report also highlighted the impact of monetary and regulatory reforms on the FX market. Since the overhaul of FX regulations in early 2024, the market has seen improved stability, with the parallel market premium largely eliminated by mid-year. The adoption of a new interbank FX trading platform in December 2024 and the release of new operational guidelines enhanced transparency and price discovery.
In addition, the CBN’s reform of the bureau de change (BDC) segment, allowing limited and temporary access to the interbank market through authorised dealers was cited as a potentially transformative step. If permanently implemented, the World Bank said, this could help bridge the gap between the interbank and retail FX markets, which have long been dominated by informal transactions.
The unification and depreciation of the naira also played a key role in improving Nigeria’s external balances in 2024. The report stated that the current account balance (CAB) surged by 185% to $17.2 billion, or 9.2% of GDP, driven by compressed imports and higher formal remittance inflows, which reached an estimated $21 billion.
While oil production rose, dollar earnings from oil exports declined, but non-oil exports increased by 25 percent, buoyed by the more competitive exchange rate.
The World Bank further reported a significant increase in FPI inflows, which grew by 110% to $13 billion in 2024, supported by higher yields on domestic debt instruments and a more transparent FX market. However, foreign direct investment (FDI) remained weak, still under 1% of GDP due to persistent structural challenges in the business environment.
Meanwhile, the “other investments” category in the financial account recorded a net outflow, largely due to substantial repayments of foreign loans, reflecting continued strain in Nigeria’s external financing conditions despite the reforms.
