Nigeria’s foreign exchange reserves experienced a significant decline in February 2025, decreasing by $1.31 billion to reach $38.42 billion by the end of the month. This 3.3% drop marked a continuation of the downward trend observed in January and raised concerns about the country’s ability to manage external pressures and meet its financial obligations. The consistent depletion of reserves throughout February, with no single day of increase, signaled a persistent challenge for the Nigerian economy. This decline, attributed to various factors including import dependency, oil production challenges, and debt servicing, underscored the need for comprehensive strategies to bolster the nation’s forex reserves and stabilize the economy.
The primary driver behind the dwindling reserves is Nigeria’s heavy reliance on imports, particularly industrial goods and food supplies, resulting in substantial forex outflows. Despite a rebound in global oil prices, the country’s oil sector faced persistent challenges including crude oil theft, pipeline vandalism, and production limitations. These issues significantly hampered forex inflows from oil, a crucial source of revenue for Nigeria, and constrained the Central Bank of Nigeria’s (CBN) capacity to replenish reserves. The combination of high import costs and diminished oil revenues created a double-edged sword, exacerbating the decline in forex reserves.
The sustained depletion of reserves raised concerns regarding Nigeria’s ability to service its substantial external debt. A further decline in reserves could jeopardize the country’s capacity to meet debt repayment deadlines, potentially leading to increased borrowing costs and negatively impacting its credit rating. Such a scenario could also erode investor confidence, making it more difficult and expensive for the government to access international capital markets. The implications of dwindling reserves extended beyond immediate debt servicing challenges, potentially affecting Nigeria’s overall economic stability and its ability to attract foreign investment.
Despite the concerning decline in foreign reserves, the Nigerian naira exhibited remarkable resilience in February, appreciating significantly against major foreign currencies. This positive performance suggested that the CBN’s interventions in the foreign exchange market, aimed at bridging liquidity gaps and stabilizing the naira, were yielding some positive results. The naira gained against the US dollar, British pound, and the euro, signaling increased confidence in the local currency and a potential turning point in its performance against international currencies.
The naira’s appreciation against the US dollar was particularly notable, closing at N1,540/$ compared to N1,620/$ at the beginning of the month, representing a 7.41% gain. Similarly, it strengthened against the British pound and the euro, demonstrating its resilience despite the challenges facing the broader economy. This strengthening of the naira, coupled with the CBN’s efforts to stabilize the exchange rate, suggested a move towards a more unified forex market, which could reduce speculation and arbitrage, promoting greater stability in the long run.
The convergence of the official and parallel market exchange rates towards the end of February further indicated a potential shift towards a unified forex market. This convergence, reflected in the narrowing gap between the official NAFEX rate and the parallel market rate, could contribute to greater transparency and efficiency in the forex market. It also signaled the potential for reduced volatility and a more stable exchange rate environment, which would be beneficial for businesses and investors operating in Nigeria. This convergence, while positive, needed to be sustained to ensure long-term stability and minimize the risks associated with fluctuating exchange rates.
