Nigeria’s Forex Reserves Dip Amid Naira’s Strength, Raising Economic Concerns

Nigeria’s foreign exchange reserves experienced a significant decline in February 2025, falling by $1.31 billion, even as the naira demonstrated notable strength against major foreign currencies. This paradox has ignited discussions about the sustainability of the Central Bank of Nigeria’s (CBN) interventions and the broader implications for the nation’s economic stability.

The CBN data reveals a drop from $39.72 billion on January 31st to $38.42 billion by February 28th, a 3.3% decrease. This exceeds the 1.16 billion decline observed in January, signaling a persistent strain on the nation′s external financial buffers.

$“The\; steadydepletionofreserveshas\; raisedconcerns,”asnoted\; fromthedata,especiallygiventheCBN’saggressive\; effortsto\; stabilizethenaira.$

When we speak of reserves, we′re not just talking about abstract numbers. These figures under pin our ability to import essential goods, service our debts, and maintain investor confidence. A sustained decline could translate to higher prices for everyday Nigerians, increased borrowing costs for the government, and a potential dampening of foreign investment. Why the decline? Nigeria’s reliance on imports, coupled with ongoing challenges in oil production, plays a significant role. Despite recent oil price rebounds, crude theft and pipeline vandalism continue to hinder forex inflows, limiting the CBN′s capacity to replenish reserves.

According to the Organization of the Petroleum Exporting Countries (OPEC), Nigeria′s oil production has struggled to meet its quota, impacting potential revenue.

Read Also: Nigeria’s Foreign Reserves Plummet by $832 Million in January

$“The\; country\; remainshighly\; relianton\; imports\; ofindustrialgoodsand\; foodsupplies,leadingtohighFXoutflows,”as\; statedintheanalysis.$

$Thisimportdependencyisacriticalfactor,anddirectlyimpactsthe\; costoflivingfor\; everyday\; citizens.However,amidst\; this\; reservedepletion,thenairaexperiencedaremarkableappreciation\; in\; in\; February.$$The\; currency\; strengthenedagainst\; theUSdollar,closingat\; N1,540/\$$ from N1,620/$$,a7.41\%\; increase.$

$The\; officialexchange\; ratealso\; stabilized,closingat\; N1,496/\$$ in the Nigerian Autonomous Foreign Exchange Market (NAFEM), narrowing the gap between the official and parallel market rates. This convergence is a positive sign, indicating progress towards a unified forex market, which could reduce speculation and arbitrage.

But here’s the crucial question: at what cost? The CBN’s interventions, while bolstering the naira, appear to be drawing down reserves. This raises concerns about the long-term sustainability of this strategy. A lower reserve level could potentially affect Nigeria’s credit rating and investor confidence, making it more expensive for the government to access international capital markets.

“The depletion of external reserves has also raised concerns over Nigeria’s capacity to meet external debt obligations,” a critical point that demands attention. Nigeria holds significant foreign debt, and a decline in reserves could weaken its ability to meet these obligations.  

Moving forward, Nigeria must address its structural economic challenges. Diversifying the economy, boosting domestic production, and tackling oil sector inefficiencies are crucial steps. As a news writer, I believe that informed public discourse is essential for navigating these complex economic issues. We must critically examine the data, understand the implications, and hold our institutions accountable.