Nigeria’s Foreign Reserves Plummet by $2.2 Billion Amid Naira Support Concerns
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Nigeria’s foreign reserves have taken a significant hit, dropping by $2.2 billion, raising concerns about the Central Bank of Nigeria’s (CBN) support for the Naira and the settlement of over $2 billion in foreign exchange backlog. This decline follows comments from Bismark Rewane, CEO of Financial Derivatives, who revealed that the CBN had spent $8.8 billion defending the Naira.
In a recent investor note, AIICO Capital Limited highlighted robust trading activity, with transactions occurring within the $/N1,490.00 to $/N1,520.00 per US dollar range. Analysts agree that the CBN’s intervention played a major role in this pricing. Daily Trust reported that the CBN intervened in the foreign exchange market, selling US$66.80 million to authorized dealer banks, which also bolstered FX supply to Bureau de Change.
As a result, the Naira gained N8.62 and N50.00 to close at $/N1,501.08 and $/N1,510.0 in the official and parallel markets, respectively. TrustBanc Financial Group Limited noted that Nigeria’s FX reserves declined by USD300.11 million week on week to USD38.74 billion, marking the sixth consecutive week of decline.
Data compiled by Bloomberg shows that forex reserves have shrunk by $2.2 billion since hitting a $40.92 billion high on January 6. This slide is the longest since November 2022 and is set to take Nigeria’s reserves to the lowest level since October. Before this, foreign reserves stood at $42 billion in December.
According to a report by Daily Trust, the foreign exchange reserves declined significantly by $1.16 billion in January 2025, wiping out the $592.58 million gain recorded in December 2024. CBN data reviewed by the newspaper indicates a steady decline throughout the month, with reserves dropping from $40.88 billion on January 2 to $40.75 billion by January 10. The decline accelerated in the latter half of the month, falling below the $40 billion threshold on January 22 and closing at $39.72 billion by month-end.
CBN Governor Yemi Cardoso attributed the previous decline in April 2024 to debt repayments and other standard financial obligations, rather than efforts to defend the Naira. The January decline follows the CBN’s increased dollar sales to Bureau De Change (BDC) operators as part of efforts to stabilize the Naira.
The CBN resumed dollar sales to BDCs in December, injecting foreign exchange into the retail segment. In a circular, the CBN granted BDC operators temporary permission to purchase up to $25,000 weekly in FX from the Nigerian Foreign Exchange Market. The transactions will occur at the prevailing NFEM rate, and BDCs are required to adhere to a maximum 1% spread when pricing FX for retail end-users.
The arrangement was to be in effect from December 19, 2024, to January 30, 2025. However, the CBN has extended the deadline for BDC operators to access the NFEM for weekly FX purchases to May 30, 2025.
CBN Governor Cardoso also hinted at the conclusion of the verification process for the remaining $2.4 billion foreign exchange backlog, with payments for valid claims set to begin. The FX backlog, which stood at $7 billion when he assumed office, has now been reduced to $2.2 billion.
Dr. Paul Alaje, Chief Economist at SPM Professionals, emphasized the importance of central bank intervention in stabilizing the Naira. He argued that without such intervention, the exchange rate could have reached N1,800 per dollar, with a trajectory towards N2,500 by the end of the year. Alaje also stressed the need for policies to promote exports to ensure long-term stability.
The CBN’s strategy aims to restore confidence in the FX market by ensuring liquidity at the retail end. However, the sustainability of this intervention remains a concern, as Nigeria’s reserves continue to dwindle.
