Nigeria’s FX Reserves Decline by $1.16 Billion: Addressing the Concerns

In January 2025, Nigeria witnessed a significant decline in its foreign exchange (FX) reserves, losing $1.16 billion within a month.

According to the Central Bank of Nigeria (CBN), the reserves fell from $40.88 billion at the end of December 2024 to $39.72 billion by January 31, 2025. This represents a 2.84% decline, the sharpest monthly drop since April 2024. The decline has raised several concerns about the country’s external liquidity position and its ability to meet its obligations, including debt repayments and import financing.

The CBN has attributed the decline to increased FX outflows, including payments for foreign obligations and US dollar auctions. To address ongoing currency volatility, the CBN has increased dollar sales to Bureau De Change (BDC) operators, aiming to stabilize the naira and ensure liquidity at the retail end. The CBN’s strategy involves resuming dollar sales to BDCs, injecting foreign exchange into the retail segment to curb speculative attacks on the naira. However, the steep decline in reserves has raised questions about the effectiveness of these measures and their impact on Nigeria’s overall economic stability.

Public opinion on the matter is mixed. Some commentators have praised the CBN’s efforts to stabilize the naira and restore confidence in the FX market. They believe that the measures taken by the CBN, including the temporary permission for BDC operators to purchase up to $25,000 weekly in FX from the Nigerian Foreign Exchange Market, are necessary steps to address the ongoing currency volatility.

On the other hand, critics argue that the CBN’s strategies are not sufficient to address the root causes of the decline. They point out that the reserves are being depleted due to increased FX outflows, and there is a need for more comprehensive measures to address the situation.

The economic implications of the declining FX reserves are significant. A lower reserve level means reduced capacity to meet external obligations, including debt repayments and import financing. This could lead to a depreciation of the naira, higher inflation rates, and increased pressure on Nigeria’s already strained economic resources. The decline in reserves also raises concerns about the country’s ability to maintain a stable exchange rate and ensure economic stability in the long run.

One of the key challenges facing Nigeria is the need to balance the short-term measures aimed at stabilizing the naira with long-term strategies to address the underlying issues affecting the FX reserves. Strengthening regulatory oversight, increasing transparency in FX transactions, and implementing policies that promote economic diversification are essential steps to achieve this balance. Additionally, attracting foreign investment and boosting non-oil exports can help improve Nigeria’s FX reserves and reduce its reliance on oil revenue.

Transparency and accountability are crucial in addressing the issue of declining FX reserves. The government and regulatory bodies need to ensure that there are robust mechanisms in place to track and monitor the allocation and usage of FX reserves. Establishing a transparent and accountable system for FX transactions will also help build confidence among foreign investors and promote economic stability.

In conclusion, the decline in Nigeria’s FX reserves is a cause for concern, but it also presents an opportunity for the country to implement comprehensive measures to address the underlying issues affecting its economy. By balancing short-term measures with long-term strategies, strengthening regulatory oversight, and promoting transparency and accountability, Nigeria can enhance its economic stability and ensure sustainable growth in the future. The CBN’s efforts to stabilize the naira and restore confidence in the FX market are commendable, but sustained efforts and collaboration between stakeholders will be essential to achieve lasting change and address the challenges facing Nigeria’s economy.