Nigeria’s foreign exchange (FX) reserves fell sharply by $1.16 billion in January 2025, reversing the $592.58 million gain recorded in December 2024. The latest figures from the Central Bank of Nigeria (CBN) show that reserves dropped from $40.88 billion at the start of the year to $39.72 billion by January 31.
This decline, the steepest since April 2024, has raised concerns about Nigeria’s external liquidity and its ability to meet financial obligations such as debt payments and import financing.
According to CBN data reviewed by Nairametrics, the decline was gradual at first, with reserves decreasing from $40.88 billion on January 2 to $40.75 billion by January 10. However, the drop accelerated in the latter half of the month, with reserves falling below the $40 billion mark on January 22 and closing at $39.72 billion at month-end.
The 2.84% decline in just one month has triggered concerns among financial analysts and investors. The last time Nigeria experienced such a sharp drop was in April 2024, when reserves fell by $2.16 billion due to external debt repayments and other financial commitments.
CBN Governor Yemi Cardoso had previously attributed the April 2024 decline to debt servicing obligations rather than efforts to defend the naira. However, the latest drop in reserves is linked to the CBN’s decision to increase dollar sales to Bureau De Change (BDC) operators in an effort to stabilize the naira.
The CBN resumed dollar sales to BDCs in December 2024 as part of a broader strategy to curb speculation against the naira. Under this arrangement, BDC operators were initially allowed to buy up to $25,000 weekly from the Nigerian Foreign Exchange Market (NFEM). This intervention aimed to boost liquidity in the retail forex market and prevent excessive depreciation of the naira.
Despite concerns about declining reserves, the CBN defended its approach, arguing that increasing FX availability would restore investor confidence in the Nigerian economy. “Our objective is to ensure stability in the foreign exchange market while maintaining liquidity for legitimate transactions,” a CBN official said.
Originally, the CBN’s intervention in the BDC market was scheduled to end on January 30, 2025. However, in a circular signed by Dr. W.J. Kanya, Acting Director of the CBN’s Trade & Exchange Department, the apex bank announced an extension of the policy until May 30, 2025.
The directive allows BDCs to purchase FX from any single authorized dealer of their choice, provided they fully fund their accounts in advance. The transactions occur at the prevailing NFEM rate, with BDCs required to maintain a maximum 1% spread when selling to customers.
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The CBN’s intervention has eased pressure on the naira, which had faced significant volatility in 2024. The Nigerian currency closed January 2025 at N1,475/$1 at the NFEM, marking its strongest level since June 2024.
In comparison, the naira had ended December 2024 at N1,535/$1, meaning it gained N60 or 3.91% in value over the past month. Financial analysts believe that the increase in FX supply helped stabilize the market, reducing the gap between official and parallel market rates.
“This policy has provided some relief to businesses and individuals who rely on forex for imports and international transactions,” an economist at a Lagos-based investment firm stated. “However, the challenge remains the sustainability of this strategy given the ongoing decline in reserves.”
While the CBN’s intervention has momentarily strengthened the naira, some experts warn that continued depletion of foreign reserves could create long-term challenges.
“The drop in reserves raises questions about how long the CBN can continue selling dollars at this rate,” a financial analyst noted. “If reserves keep falling, Nigeria may face difficulties meeting external obligations, and this could trigger further instability in the FX market.”
With the extension of FX sales to BDCs until May, market watchers will be closely monitoring Nigeria’s foreign reserves and the effectiveness of the CBN’s intervention strategy. The coming months will determine whether this approach can maintain exchange rate stability without further weakening the country’s external financial position.