With inflation easing to 24.5% in January, rising foreign direct investment (FDI) inflows, and an expanding gross domestic product (GDP), Nigeria’s economy is recovering faster than many analysts anticipated. Meanwhile, the Central Bank of Nigeria (CBN)-led Monetary Policy Committee’s decision to maintain interest rates at its last meeting has fueled a rally in Nigeria’s Eurobond market, reinforcing foreign investors’ confidence in the domestic economy.
Undoubtedly, the Nigerian economy has the potential to attract and sustain foreign investors’ interest. Several macroeconomic indicators are improving, and the expanded GDP size is drawing savvy investors back to the country. Investment reports show that Nigeria’s Eurobond market closed the month of February on a positive note, signaling sustained confidence among foreign investors. According to data from the Debt Management Office (DMO), the average yield on Nigeria’s Eurobonds closed at 8.80%, down 41 basis points from 9.21% at the beginning of February, indicating strong investor appetite.
In the sub-Saharan African Eurobond market, yields also fell by 27 basis points to an average of 8.4%, showing that Nigeria outperformed the region. Analysts at Afrinvest indicated that this improved performance is due to the region attracting interest amid improving macroeconomic dynamics and lower interest rate trends. Analysts at CSL added that the drop in yield is largely influenced by global risk-off trends, geopolitical uncertainties, and key economic data releases.
Looking ahead, analysts at Afrinvest anticipate that the market will perform well, driven by substantial liquidity inflows from coupon payments of N642.6 billion and maturities of N562.5 billion. They noted, “Additionally, a dovish interest rate outlook should reinforce the bullish sentiment. In the sub-Saharan Africa market, the hunt for yields is likely to remain a dominant theme for sustained offshore interest in the region.” The CBN-led MPC’s decision to keep interest rates unchanged at its last meeting is also keeping global investors engaged with the domestic economy.
Rebased GDP Signals New Strength for the Economy.
The economy received a significant boost from the National Bureau of Statistics (NBS), which recently rebased the economy after a nine-year gap. This rebasing means that the economy appears larger than previously reported due to the inclusion of new and fast-growing sectors like fintech, e-commerce, entertainment, and digital services. As a result, there will be a sectoral shift in economic contribution, with technology, telecommunications, and entertainment (including Nollywood and digital startups) commanding a greater share of GDP. Conversely, the contributions from agriculture and oil & gas may decrease as these newer sectors gain prominence.
According to Ayo Olodo, an Abuja-based public commentator, informal sector activities, which are often underestimated, may now be better captured in economic assessments. Consequently, changes in key economic indicators are likely to occur. For instance, the debt-to-GDP ratio may improve, suggesting that Nigeria has more fiscal space to borrow, although debt servicing costs will remain a key concern.
Additionally, per capita income may increase; however, this does not necessarily indicate improved living standards if inflation remains high. Olodo emphasized, “The implications for policy and investment are noteworthy. Foreign investors may be drawn to newly highlighted sectors that were previously underreported. The government may need to adjust fiscal and monetary policies to better align with the rebased economy. Taxation policies may be reviewed, especially if certain high-growth sectors are found to be under-taxed.”
Moreover, if GDP grows significantly, Nigeria may move closer to upper-middle-income status, potentially affecting its eligibility for concessional loans and development aid. Olusegun Alebiosu, CEO of FirstBank Group, pointed out that improving government revenues, a better revenue-to-debt service ratio of 68%, and an increase in foreign reserves to over $40 billion are all positive indicators for the economy.
He noted, “Early signs such as the stability that characterized the forex market after the introduction of the electronic foreign exchange matching system in December 2024, the emergence of competition in the supply side of our nation’s downstream sector leading to falling prices of premium motor spirit (PMS), and the resumption of operations at the Port Harcourt and Warri refineries suggest that there is, indeed, light at the end of the tunnel for our country.”
Alebiosu believes that the timing of these developments has strengthened optimism about the Nigerian economy, especially as we enter the new year of 2025. Additionally, the government’s projected N54.99 trillion budget for 2025 is expected to provide sufficient economic stimulus, with a lower likelihood of poor budget execution due to improving government revenue. The projected GDP growth rate of 3.68% for 2025 is considered a likely outcome, given the impacts of necessary reforms implemented by the government.
What the MPC Did.
The Monetary Policy Committee (MPC) voted to maintain the Monetary Policy Rate (MPR) at 27.50 percent, keeping all other parameters unchanged. This includes the Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) at 50 percent and for Merchant Banks at 16 percent, as well as the asymmetric corridor around the MPR and the liquidity ratio at 30 percent.
According to the National Bureau of Statistics (NBS), Nigeria’s annual inflation rate was 24.48 percent in January, a decrease from the previous month following the rebasing of the Consumer Price Index (CPI) for the first time in over a decade. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), emphasized the importance of consolidating market gains and ensuring sustained improvement. He stated, “We will enhance collaboration with the fiscal sector by increasing the depth and regularity of our interactions to drive economic growth. With stabilizing foreign exchange rates, strengthened price controls, and rising investor confidence, the economy shows strong signs of resilience and recovery.”
Cardoso explained that, in light of positive developments in the foreign exchange market, the CBN is focused on boosting liquidity and maintaining transparency in forex operations. “Our objectives have been, and will continue to be, achieving stability in the foreign exchange and financial markets. The CBN will embrace orthodox policies and remain vigilant; we will not take anything for granted. Inflation has been too high for too long, and our goal is to bring it down from double digits to single digits in the medium to long term,” he said. The naira appreciated by 6.95 percent to N1,510 per USD in the parallel market in February, driven by exchange rate expectations, subdued forex demand, and sustained CBN interventions.
Businesses, particularly in the real sector, welcomed the MPC’s decision to hold rates, as it helps sustain the naira’s rally and reduce the rising cost of borrowing. Those decisions were based on the Committee’s anticipation of robust GDP growth in the medium term, largely due to strong contributions from the non-oil sector. The MPC also noted the sustained rise in domestic crude oil production (1.74 million barrels per day) and expects an improved contribution from the oil sector, which will further strengthen overall GDP growth.
The MPC acknowledged the rebasing of the CPI and the adjustments in the weights of items in the CPI basket, stating that the new methodology reflects current consumption patterns. Furthermore, the Committee expects inflationary pressures to moderate in the near future, aided by a relatively stable naira and gradual decreases in petroleum product prices. The MPC highlighted the recent appreciation of the naira, supported by improved liquidity in the foreign exchange market.
The Committee recognized the CBN’s current measures to foster transparency and credibility in the forex market, including the implementation of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code. The Committee expects these sustained policy initiatives to enhance foreign direct and portfolio investments as investors’ confidence continues to grow. Additionally, the MPC noted that increased domestic crude oil production is expected to improve the current account balance and support the accumulation of foreign exchange reserves. There has been a boost in investments and remittances, with remittances through International Money Transfer Operators (IMTOs) increasing by 79.4 percent to USD 4.18 billion in the first three quarters of 2024, reflecting the positive impact of foreign exchange reforms.
The CBN also lifted a restriction from 2015 that barred 41 items from accessing foreign exchange at the official market to promote trade and investment.
These reforms and developments demonstrate the bank’s commitment to creating an enabling environment for inclusive economic development. However, achieving macroeconomic stability requires sustained vigilance and a proactive monetary policy stance. “As we transition from unorthodox to orthodox monetary policy, the CBN remains dedicated to restoring confidence, strengthening policy credibility, and focusing on its core mandate of price stability,” Cardoso reaffirmed.
To address the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 percent in 2024—an essential move to contain inflation and restore stability.
Analysts assert that these measures under Cardoso have not only uplifted the forex market and established long-lasting stability but also laid the groundwork for sustainable economic growth.
Significantly, the resilience of the domestic economy, supported by a strong financial system with robust soundness indicators, instills confidence in its structure. Major prudential ratios, such as capital adequacy, liquidity, and non-performing loans, are within regulatory limits, showcasing proactive oversight and strong risk management practices within the industry. Notable credit has been extended to growth-enhancing sectors like agriculture, manufacturing, general commerce, as well as to individuals and households.
