Paragraph 1: Nigeria’s External Reserves and Oil Production Challenges
Nigeria’s external reserves, crucial for maintaining the value of the naira, have experienced fluctuating fortunes. Upon President Tinubu’s inauguration in May 2023, reserves stood at $35.09 billion. However, they declined to a three-year low of $33.04 billion by January 2024, primarily due to a slump in oil production, which constitutes over 90% of the country’s foreign exchange earnings. This decline was triggered by disruptions in the Niger Delta, leading to the closure of several oil fields and a subsequent dollar shortage. This scarcity impacted the forex market, forcing the Central Bank of Nigeria (CBN) to grapple with stabilizing the naira and leaving many importers scrambling for dollars in the parallel market.
Paragraph 2: Recovery of Oil Production and Forex Reserves
Nigeria’s economic outlook has brightened considerably since the initial downturn. The government’s efforts to address the Niger Delta crisis have borne fruit, resulting in increased oil production. By November 2024, output reached 1.7 million barrels per day, a significant increase from the previous year. With ambitious production targets of 2.06 million bpd for 2025 and 2.7 million bpd by 2027, the country aims to further bolster its foreign exchange earnings. This resurgence in oil production has contributed significantly to the replenishment of external reserves, which have surged by nearly 20% to $38.33 billion by March 2024.
Paragraph 3: CBN Interventions and Naira Stabilization
The CBN has played a pivotal role in stabilizing the forex market and managing the naira’s value. Utilizing the increased external reserves, the apex bank has intervened in the market, injecting liquidity and ensuring sufficient dollar supply to retail users. These interventions have helped to reduce market distortions, curb the naira’s depreciation in both official and parallel markets, and restore foreign investor confidence. The injection of $360 million into the market through authorized dealers has been particularly instrumental in mitigating further devaluation pressures. Consequently, the naira has appreciated from its record low of N1681/$ in November 2024 to N1531.19/$ by March 2024.
Paragraph 4: Addressing Economic Challenges and Inflation
Despite the positive trends in forex reserves and naira stabilization, challenges persist. Experts argue that the exchange rate remains high, hampering local businesses’ competitiveness in the international market. Economists advocate for bridging the gap between the naira and the dollar to pre-May 2023 levels to alleviate the burden on Nigerians. While headline inflation has decreased to 23.18% in February 2025 from its peak of 34.8% in December 2024, further reductions are needed to ease the cost of living. Experts caution that decelerating inflation doesn’t automatically translate to lower prices.
Paragraph 5: New Policies and Initiatives to Support Economic Growth
The CBN has implemented various policies to support the naira and stimulate economic growth. The introduction of the Foreign Exchange Code aims to enhance transparency, accountability, and ethical conduct in the forex market. The Electronic Foreign Exchange Matching System (EFEMS) has been implemented to curb speculative activities and provide real-time market information. Further liberalization of the forex market by removing restrictions on accessing foreign currency for 41 items is expected to boost trade and investment.
Paragraph 6: Harnessing Diaspora Remittances for Economic Development
Recognizing the importance of diaspora remittances, the CBN has launched two new financial products: the Non-Resident Nigerian Ordinary Account (NROA) and the Non-Resident Nigerian Investment Account (NRIA). These accounts are designed to facilitate remittances, encourage diaspora investments in Nigerian financial markets, and promote financial inclusion for Nigerians abroad. These initiatives, coupled with measures to streamline access to naira liquidity for international money transfer operators, are expected to significantly boost diaspora remittances, which play a vital role in supporting the naira and driving economic growth. Experts highlight the transformative impact of remittances, noting that they not only support daily needs but also contribute to infrastructure development, entrepreneurship, and financial inclusion. While the economic indicators show positive signs, Nigerians anticipate tangible improvements in their living standards through reduced prices of essential goods.
