A recent report by AIICO Capital Limited has highlighted how additional inflows from the Nigeria Liquefied Natural Gas (NLNG) dividend refund and the 13% derivation funds have played a crucial role in maintaining liquidity stability in Nigeria’s financial system.
According to the investment management firm, these inflows provided significant support to the economy amid fluctuating revenue streams and persistent pressure on the naira. AIICO Capital noted that the injection of funds, particularly from the NLNG dividend refund, contributed to increased dollar supply in the forex market, thereby easing liquidity constraints.
The report further emphasized the impact of the 13% derivation funds disbursed to oil-producing states. These funds, meant to compensate for resource extraction, enhanced government spending at the sub-national level, leading to improved economic activities. Analysts at AIICO Capital observed that the increased liquidity helped mitigate potential fiscal disruptions and strengthened financial market stability.
“These inflows have been instrumental in cushioning the effects of revenue shortfalls and ensuring that liquidity levels remain adequate to support economic activities,” the report stated.
The report also pointed out that while these inflows provided temporary relief, long-term economic stability would require sustained revenue diversification and strategic fiscal policies. AIICO Capital recommended that the government continue its reforms in the oil and gas sector while exploring alternative revenue sources to reduce overdependence on volatile external earnings.
Market analysts believe that the recent stability in interbank lending rates and a slight improvement in forex market liquidity can be attributed to these additional funds. The Central Bank of Nigeria (CBN) has also been able to moderate excessive fluctuations in money market rates due to the increased liquidity buffer.
With Nigeria’s economy still facing external and domestic challenges, AIICO Capital concluded that timely fiscal interventions, such as the NLNG dividend refund and the derivation funds, are crucial in sustaining financial market confidence and supporting economic recovery efforts.
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