Foreign reserves drop to level last seen in Oct. 2024

…Deplete by $1.38bn year-to-date to $39.497bn

Nigeria’s foreign exchange reserves have depleted by $1.38billion since this year, reaching $39.497billion as at February 5.

The reserves currently stand at a level last seen on October 25, 2024 when the reserves were at $39.440billion.

The nation’s foreign reserves had closed year 2024 at $40.877billion, according to Central Bank of Nigeria (CBN) data.

“We observe a weak organic contribution of oil exports to reserve build-up, as much of the build-up in reserves can be traced to multilateral inflows, external debt issuances and foreign portfolio interests,” said Ibukun Omoyeni, SSA economist at Lagos-based Vetiva Research in their 2025 Macroeconomic Outlook, titled “Little room for surprises”.

In 2024, Nigeria raised $3.8 billion in debt– a $900 million domestic bond, a $2.2 billion Eurobond and $750 million out of a $2.2 billion World Bank loan package.

While Nigeria’s gross foreign currency assets are depleting as shown by the CBN in the movement of reserves, the domestic currency has continued to strengthen.

“Looking ahead, Nigeria faces some notable debt obligations. Aside from 2026, the country has Eurobond maturities averaging $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion.

“These maturities suggest that debt repayment and servicing costs are likely to remain high in the near to medium term,” said CardinalStone Research analysts in their 2025 outlook.

Read also: Nigeria’s foreign reserves now stand at nearly $42bn – Tinubu

When Fitch Ratings in November 2024 affirmed Nigeria’s long-term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a Positive Outlook, it said the rating was “constrained by weak governance indicators relative to peers, high hydrocarbon dependence, weak net foreign-exchange (FX) reserves, high inflation, ongoing security challenges, and structurally low, albeit improving, non-oil revenue”.

“There is significant uncertainty over the size of net reserves. We estimate that around one-quarter of current gross reserves are made up of FX swaps with local banks, although we expect most of these to continue to be rolled over,” Fitch Ratings had noted.

While noting that their positive outlook for Nigeria reflects progress in implementing reforms that improve policy coherence and credibility, and reduce economic distortions and near-term risks to macroeconomic stability, Fitch forecasted Nigeria’s FX reserves to rise to average 5.3 months in 2025-2026.

“Forecasting the level of the CBN’s Net Foreign Assets is important, because it gives us an idea of how many US dollars the CBN has at its disposal in the event that it decides to increase the supply of US dollars to the NAFEM market in 2025,” said the Guy Czartoryski-led team of Coronation Research in their report “2025 Year Ahead”.

They noted that CBN’s moderate supply of US dollars to the NAFEM market in 2024 suggests parsimony (that is extreme unwillingness to spend money or use resources”.

“In 2025, in an optimistic scenario, it could supply much more than in 2024, and cause the Naira to appreciate, with positive knock-on effects on imported inflation,” Coronation Research analysts said.

The naira appreciated further in the parallel market, popularly called black market, on Thursday, a day after the Central Bank of Nigeria (CBN) issued new directives on the purchase of dollars by the Bureau De Change (BDCs).

The naira strengthened by N15/$1, on Thursday as the dollar was quoted at N1,570, marking a 0.95 percent gain against N1,585 quoted on Wednesday in the black market. Street trader who gave his name as Mohammed said there was low activity in the market due to low demand for the dollar. “We have enough dollars but the demand is low,” Mohammed said.

On Wednesday, the apex bank issued new directives, which allows authorised dealers to sell foreign exchange cash to BDCs subject to a maximum of $25,000 to a BDC per week. The new regulation aims to enhance tracking, transparency, and anti-money laundering efforts in the foreign exchange market operated by BDCs.

The CBN said foreign exchange cash purchased by BDCs from authorised dealer banks shall be sold to foreign exchange end-users at a rate not exceeding 1 percent margin above the buying rate.