Nigeria’s External Reserves Experience First Steady Growth in 2025, Signaling Potential FX Stability
Nigeria’s external reserves have witnessed their first sustained increase of 2025, rising by $364 million between April 30 and May 14. This two-week period of consistent growth, culminating in reserves reaching $38.289 billion, marks a significant turning point after a period of decline since the peak of $40.92 billion on January 6. While the absolute gain is modest, its significance lies in signaling a potential shift in market sentiment and offering a glimmer of hope for foreign exchange (FX) stability after months of pressure on the naira. The rebound follows a challenging first quarter marked by a nearly $3 billion decline in reserves due to a confluence of factors including strong demand for foreign exchange, weaker oil earnings, and external debt obligations.
The recent increase in reserves is attributed to a combination of factors, most notably, policy reforms implemented by the Central Bank of Nigeria (CBN). These reforms, spearheaded by CBN Governor Olayemi Cardoso, center on reducing direct intervention in the FX market and allowing market forces to play a greater role in price determination. This approach appears to have instilled renewed confidence among investors, leading to increased inflows and contributing to the reserve build-up. Cardoso emphasized that the improvement is a direct result of deliberate policy choices aimed at bolstering confidence, mitigating vulnerabilities, and establishing a foundation for long-term economic stability.
The CBN anticipates further reserve accretion during the second quarter, driven by projected increases in oil production and non-oil exports. The first quarter’s challenges, including seasonal factors and external debt servicing, are expected to abate, allowing for a more positive outlook for the remainder of the year. This positive trajectory is crucial for maintaining stability in the foreign exchange market and meeting external debt obligations.
The strengthened reserves, now providing nearly eight months of import cover, are expected to provide several immediate benefits for the Nigerian economy. Firstly, the pressure on the foreign exchange market should ease, potentially leading to a more stable naira. Secondly, the CBN’s capacity to meet debt service obligations will be enhanced, reducing risks of default and improving Nigeria’s creditworthiness. Thirdly, the improved reserve position can positively influence Nigeria’s external credit outlook, making it more attractive for foreign investment and potentially lowering borrowing costs.
However, sustaining this positive momentum requires a multi-pronged approach. Stable oil earnings are essential, as oil remains a crucial component of Nigeria’s export revenue. Diversification efforts to boost non-oil exports must continue to reduce reliance on the volatile oil market. Attracting increased capital inflows through foreign direct investment and portfolio investment is vital for bolstering reserves. Finally, sustained reform momentum is necessary to build on the gains achieved and maintain investor confidence.
The CBN’s commitment to prudent reserve management and transparent macroeconomic policies is crucial for long-term economic resilience. These policies, combined with a favorable external environment and sustained reform efforts, will determine whether the recent reserve build-up marks the beginning of a period of sustained FX stability and improved economic performance for Nigeria. The road ahead requires careful management and a commitment to sound economic principles.
