Emmanuel OchayiNigeria’s FX reserves fell by $1.31 billion in February 2025, continuing a downward trend that has raised concerns about the country’s economic stability. Data from the Central Bank of Nigeria (CBN) showed that reserves declined from $39.72 billion on January 31 to $38.42 billion by February 28, marking a 3.3% drop within the month.
The February decline was slightly higher than the $1.16 billion decrease recorded in January, highlighting the continued strain on the country’s external reserves. Analysts attribute the depletion to CBN’s intervention in the foreign exchange market, aimed at stabilising the naira.
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The drop in FX reserves was consistent throughout February, with no recorded increase on any day of the month. At the beginning of the month, reserves stood at $39.60 billion on February 3, falling to $39.54 billion on February 4. By February 7, the reserves had declined further to $39.04 billion, slipping to $39.27 billion on February 10.
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The downward trend persisted into the second half of the month. On February 12, reserves fell to $39.15 billion and declined further to $38.88 billion by February 17. By February 21, reserves had dropped to $38.69 billion, eventually closing the month at $38.41 billion.
Factors Driving the Decline in FX Reserves
Several factors contributed to the steady drop in FX reserves. Nigeria’s reliance on imported goods continues to exert pressure on foreign exchange demand, leading to increased FX outflows. Industrial goods and food imports require significant foreign currency, further straining reserves.
Although global oil prices have shown signs of recovery, Nigeria’s crude oil production remains constrained. Issues such as crude oil theft, pipeline vandalism, and production shortfalls have limited foreign exchange inflows from oil exports. As a result, the CBN has struggled to boost reserves despite higher oil prices.
The depletion of FX reserves also raises concerns about Nigeria’s ability to meet its external debt obligations. With significant foreign debt commitments, a further decline in reserves could affect Nigeria’s capacity to make timely debt repayments. This could lead to higher borrowing costs and impact the country’s credit rating.
Impact on the Foreign Exchange Market
Despite the drop in FX reserves, the naira recorded a notable appreciation against major foreign currencies in February. The local currency strengthened against the US dollar, closing at N1,540/$ from N1,620/$ at the beginning of the month, marking a 7.41% gain.
The naira also appreciated against the British pound, improving from N2,000/£ to N1,910/£, reflecting a 4.50% increase. Similarly, it gained value against the euro, strengthening from N1,660/€ to N1,550/€, marking a 6.34% improvement.
The official exchange rate also stabilised towards the end of February, with the naira closing at N1,496/$ at the Nigerian Autonomous Foreign Exchange Market. This narrowing of the gap between the official and parallel market rates suggests a movement towards a more unified forex market, reducing speculative activities and arbitrage opportunities.
Future Outlook for FX Reserves
As Nigeria continues to navigate economic challenges, the sustained decline in FX reserves remains a critical concern. Policymakers may need to implement measures to boost forex inflows, including addressing oil sector challenges and promoting non-oil exports.
The CBN’s intervention in the forex market has helped stabilise the naira in recent weeks. However, maintaining this stability without further depleting reserves will be a key challenge in the coming months.
With Nigeria’s external debt obligations and import dependence exerting pressure on FX reserves, experts warn that proactive policy measures will be necessary to avoid further depletion. Strengthening domestic production and diversifying forex sources could help stabilise reserves and sustain exchange rate stability in the long run.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
