Nigeria’s foreign exchange reserves dropped by $1.31 billion in February 2025, reflecting ongoing external pressures amid a stronger naira.
According to data from the Central Bank of Nigeria (CBN), the reserves declined from $39.72 billion on January 31, 2025, to $38.42 billion on February 28, 2025, marking a 3.3 per cent drop within the month.
The decline recorded in February is slightly higher than that of January 2025, when the reserves dipped by $1.16 billion.
The decline comes at a time when the naira has recorded some gains against the dollar, leading to speculations about the central bank’s strategy in managing foreign exchange (FX) market liquidity and ensuring exchange rate stability.
A month of consistent decline
- An analysis of the data reveals that Nigeria’s FX reserves experienced a steady and uninterrupted decline throughout February. The reserves stood at $39.60 billion on February 3, a slight drop from the previous week’s $39.72 billion recorded at the end of January. By February 4, reserves had decreased further to $39.54 billion, marking the beginning of a persistent downward trend.
- By February 7, Nigeria’s reserves had slipped to $39.04 billion, and by February 10, they fell further to $39.27 billion. The downward trajectory continued into the second week, with reserves standing at $39.15 billion on February 12 and further dropping to $38.88 billion by February 17.
- By the third week of February, reserves had weakened further, hitting $38.72 billion on February 19 and $38.69 billion on February 21. As the month came to an end, reserves continued to deplete, reaching $38.41 billion on February 28, representing a significant decline from where they started at the beginning of the month.
Likely drivers of the decline
Beyond any form of intervention that the CBN might be doing to support the naira, manage exchange rate volatility and inject liquidity into the official forex market, the government’s continued reliance on the reserves to fund critical imports and service external debt obligations likely contributed to the decline. Nigeria remains heavily dependent on imports for industrial goods and food supplies, requiring significant FX outflows to meet these demands.
The situation is further complicated by fluctuations in oil revenue, which remains Nigeria’s primary source of foreign exchange earnings. Despite a recent rebound in crude oil prices, production challenges, pipeline vandalism, and oil theft have affected the country’s ability to maximize earnings from its oil sector. This has constrained the ability to build up FX reserves.
The continued drawdown in reserves raises critical questions about Nigeria’s external position and overall macroeconomic stability. One major area of concern is the country’s ability to meet its debt obligations. Nigeria has a significant stock of external debt, and servicing these obligations requires a stable level of foreign reserves. A further decline could limit the government’s ability to meet repayment schedules, potentially increasing borrowing costs.
What you should know
The naira made a significant comeback in February 2025, appreciating against the US dollar, British pound, and euro in the parallel market.
This marks a positive shift from its previous downward trend, offering some relief to businesses and traders.
By the end of February, the naira recorded notable gains across key foreign currencies. The naira strengthened against the US dollar to N1,540/$, up from N1,620/$, reflecting a 7.41% appreciation.
Also, the naira strengthened against the British pound and improved to N1,910/£ from N2,000/£, marking a 4.50% increase, while it appreciated against the euro by rising to N1,550/€, compared to N1,660/€, showing a 6.34% gain.
This uptrend marks the strongest level for the naira since the beginning of 2025, indicating a short-term recovery in the foreign exchange market.
The official exchange rate followed a similar trend, stabilizing slightly above N1,500/$ in the weeks leading up to February’s close. According to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira settled at N1,496/$1 in the official market at the end of February.
This stability comes amid efforts by the Central Bank of Nigeria (CBN) to bridge the gap between the official and parallel market rates, ensuring a more transparent forex system.
As of February 28, 2025, the Nigerian Naira (NGN) traded at approximately N1,500 per US dollar in both the official and parallel markets. This convergence indicates a unified exchange rate market
Since the beginning of 2025, the naira has been trading above N1,600/$ in the parallel market. However, in February, the currency strengthened, hitting a yearly low of N1,480/$ on February 26, before settling around N1,500/$ by month-end.
