Nigeria’s foreign exchange reserves have been on a rollercoaster ride in recent months, declining by $2.2 billion as the Central Bank of Nigeria (CBN) intensifies efforts to stabilize the Naira. This sharp drop highlights the challenges facing Africa’s largest economy as it grapples with currency pressures and dwindling reserves.
A Steady Decline in FX Reserves
Nigeria’s FX reserves, which peaked at $42 billion in December 2023, have been on a downward trajectory. By January 31, 2024, reserves had fallen to $39.72 billion, marking the sharpest monthly decline since April 2024. This represents a 2.84% drop from the $40.88 billion recorded at the end of December 2023.
The decline, now in its sixth consecutive week, underscores the mounting pressures on Nigeria’s currency management system. With reserves dipping below the $40 billion mark on January 22, concerns are growing about the sustainability of the CBN’s intervention strategies.
What’s Behind the Decline?
The CBN has been actively defending the Naira by selling dollars in the foreign exchange market. For instance, the bank reportedly offloaded $66.80 million to authorized dealer banks to boost supply to Bureau de Change (BDC) operators.
In a bid to restore confidence at the retail level, the CBN resumed selling dollars to BDCs starting December 19, 2024, with temporary limits of up to $25,000 weekly per operator. Although the initial window closed on January 30, 2025, the deadline was extended to May 30, 2025, to maintain liquidity and market stability.
Additionally, CBN Governor Yemi Cardoso recently revealed that the bank is nearing the completion of settling a 2.4 billion FX backlog. 7 billion when he assumed office, has now been reduced to $2.2 billion after settling valid claims.
Analyzing the Data
January Reserves Drop: Reserves fell by $1.16 billion, 40.88 billion at the end of December to $39.72 billion by January 31.
Exchange Rate Volatility: The Naira traded between N1,490.00 and N1,520.00/$1, heavily influenced by CBN interventions.
Official vs. Parallel Market Rates: The Naira closed at N1,501.08/$1 in the official market and N1,510.00/$1 in the parallel market.
What’s Next for Nigeria’s Economy?
While the CBN’s aggressive measures have temporarily stabilized the Naira, the persistent drain on FX reserves signals the need for deeper structural reforms. Relying solely on dollar sales to prop up the currency is unsustainable in the long term.
To navigate these challenges, Nigeria must focus on:
Diversifying the Economy: Reducing reliance on oil exports by boosting sectors like agriculture, manufacturing, and technology.
Attracting Foreign Investment: Creating a more investor-friendly environment to attract capital inflows.
Improving Fiscal Discipline: Addressing budget deficits and reducing public debt to restore confidence in the economy.
Conclusion
Nigeria’s declining FX reserves and the CBN’s interventions highlight the delicate balance between short-term stability and long-term economic sustainability. While the Naira may remain within a manageable range for now, the path to lasting economic resilience lies in implementing structural reforms and fostering a more diversified economy.