Nigeria, an economy heavily dependent on diaspora remittances for its foreign exchange supply, is preparing for a potential reduction in critical financial inflows.
The expected decline is linked to the significant increase in mortgage interest rates in key remittance-sending countries like Canada, the United Kingdom (UK), and the United States (US).
Nigeria relies heavily on remittances from its citizens residing abroad to contribute to its foreign exchange earnings, which are pivotal to strengthening the national economy, supporting households, and funding various sectors.
Nevertheless, the recent rise in mortgage rates in Canada, the UK, and the US is poised to impact the flow of funds to Nigeria.
The rising interest rates in these countries may have prompted Nigeria’s diaspora to allocate a larger portion of their income to servicing mortgage loans, consequently reducing remittances.
In Canada, where the average rate on an existing five-year mortgage has risen to 5.99% (compared to 5.11% in June), approximately 70% of individuals have a 5-year fixed-rate mortgage. In the US, 85% of individuals have a 30-year fixed-rate mortgage.
The situation has resulted in a direct decline in savings among U.S. households. In 2022, household savings had, on average, dropped by US$100bn per month. Since 2021, a total of US$1.9trn in savings has been depleted, leaving only US$190bn left.
Projections indicate that the remaining excess savings will be exhausted in this quarter. While analysts are not expressing concerns about an impending recession in the U.S. and Canada, the decrease in savings will directly impact the remittances sent by migrants.