Nigeria’s foreign exchange reserves have fallen by $832.62 million in two weeks – between January 6 and January 21 – hurting the country’s reserves that have enjoyed relative stability and growth for about five months, as per data from the Central Bank of Nigeria (CBN).
Data from the apex bank show that Nigeria’s FX reserves stood at $40.92 billion on January 6, 2025. However, by January 21, the figure had declined to $40.09 billion, representing a 2.03 percent decrease in a fortnight.
This is as BusinessDay reported on the 15th of January that the country’s foreign currency reserves decreased by $320 million, representing a 0.8 percent drop, plunging from $40.88 billion on January 2, 2025, to $40.56 billion.
This sharp decline highlights the pressures on Nigeria’s reserves amidst ongoing currency market challenges and macroeconomic uncertainties.
Analysts have attributed this decline to two main factors – international debt servicing obligations and foreign exchange interventions by the CBN.
Nigeria’s foreign debt servicing expenditures totalled $3.6 billion over the nine months from January 31 to September 30, 2024. This marks a 39.8 percent increase, $1.02 billion more than the $2.6 billion spent in the corresponding period of 2023, as revealed by the CBN’s international payments data.
The decline in reserves highlights the ongoing financial strain posed by Nigeria’s external obligations and the delicate balance the CBN must maintain between meeting debt repayments and stabilising the foreign exchange market.
One plausible explanation for the recent dip as noted by Tobi Ehinmosan, analyst at FBNQuest, could be debt repayments.
Nigeria, like many nations, services dollar-denominated loans from institutions such as the World Bank, IMF, and bilateral agreements with countries like China.
These repayments, encompassing both principal and interest, are managed by the CBN on behalf of the federal government. The timing of such payments—whether at the beginning, middle, or end of the year—can create temporary reserve-level declines.
However, debt repayment is not the sole factor. Another potential contributor to reserve movements is the CBN’s intervention in the foreign exchange (FX) market.
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Typically, such interventions aim to stabilise the naira by supplying dollars to meet demand. Yet, given the recent depreciation of the naira, it appears unlikely that significant interventions have taken place.
Instead, the weak supply and high demand for foreign exchange may indicate minimal intervention, leaving debt repayment as the more probable cause of the current decline.
That said, it is essential to contextualise these fluctuations. A decline over a few days does not necessarily signify a sustained trend. Ehinmosan aptly advises caution, suggesting that a clearer picture would emerge after observing reserve movements over a more extended period.
“Short-term changes could just as easily reverse, highlighting the day-to-day volatility inherent in such metrics”.
Nigeria’s FX reserves are a cornerstone of its economic stability, serving critical functions such as debt servicing and currency support.
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Muda Yusuf, director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), highlighted these dual responsibilities while responding to a question on the reason for the decline in reserves.
“What the CBN has been doing to ensure that the exchange rate is stable, and we have been seeing evidence of that anyway. So for me, those are the two possibilities that will have led to that drop in reserves and in any case, that is what the reserves are meant for,” Yusuf said.
Despite the continued reduction in reserves, naira has remained calm and stable. On Friday, the naira was quoted at N1,533.26 against the dollar at the Nigerian Foreign Exchange Market (NFEM), according to data from the CBN.
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