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Nigeria’s Forex Reserves Dip Amid Naira’s Strength, Raising Economic Concerns

ByGenesis ObongMarch 10, 20252 Mins read32

Nigeria’s foreign exchange reserves experienced a significant decline in February 2025, falling by $1.31 billion, even as the naira demonstrated notable strength against major foreign currencies. This paradox has ignited discussions about the sustainability of the Central Bank of Nigeria’s (CBN) interventions and the broader implications for the nation’s economic stability.

The CBN data reveals a drop from $39.72 billion on January 31st to $38.42 billion by February 28th, a 3.3% decrease. This exceeds the $1.16 bi ll i o n d ec l in e o b ser v e d in J an u a ry, s i g na l in g a p ers i s t e n t s t r ain o n t h e na t i o n^{'} s e x t er na l f inan c ia l b u ff ers .$

$“ T h e s t e a d y d e pl e t i o n o f reser v es ha s r ai se d co n cer n s, ” a s n o t e d f ro m t h e d a t a, es p ec ia ll y g i v e n t h e CBN ’ s a gg ress i v e e ff or t s t o s t abi l i ze t h e nai r a .$

$Wh e n w e s p e ak o f reser v es, w e^{'} re n o t j u s t t a l kin g ab o u t ab s t r a ct n u mb ers . T h ese f i gu res u n d er p in o u r abi l i t y t o im p or t esse n t ia l g oo d s, ser v i ce o u r d e b t s, an d main t ain in v es t or co n f i d e n ce . A s u s t ain e d d ec l in e co u l d t r an s l a t e t o hi g h er p r i ces f or e v ery d a y N i g er ian s, in cre a se d b orro w in g cos t s f or t h e g o v er nm e n t, an d a p o t e n t ia l d am p e nin g o f f ore i g n in v es t m e n t . Wh y t h e decline? Nigeria’s re l ian ce o n im p or t s, co u pl e d w i t h ongoing c ha ll e n g es in o i l p ro d u c t i o n, pl a ys a s i g ni f i c an t ro l e . Des p i t e rece n t o i l p r i ce re b o u n d s, cr u d e t h e f t an d p i p e l in e v an d a l i s m co n t in u e t o hin d er f ore x in f l o w s, l imi t in g t h e CB N^{'} s c a p a c i t y t o re pl e ni s h reser v es .$

$A ccor d in g t o t h e O r g ani z a t i o n o f t h e P e t ro l e u m E x p or t in g C o u n t r i es (OPEC), N i g er i a^{'} s o i l p ro d u c t i o n ha s s t r ugg l e d t o m ee t i t s q u o t a, im p a c t in g p o t e n t ia l re v e n u e .$

$“ T h e co u n t ry re main s hi g h l y re l ian t o n im p or t s o f in d u s t r ia l g oo d s an d f oo d s u ppl i es, l e a d in g t o hi g h FX o u t f l o w s, ” a s s t a t e d in t h e ana l ys i s .$

$T hi s im p or t d e p e n d e n cy i s a cr i t i c a l f a c t or, an d d i rec tl y im p a c t s t h e cos t o f l i v in g f or e v ery d a y c i t i ze n s . Ho w e v er, ami d s t t hi s reser v e d e pl e t i o n, t h e nai r a e x p er i e n ce d a re ma r kab l e a pp rec ia t i o n in in February .$ $T h e c u rre n cy s t re n g t h e n e d a g ain s t t h e U S d o ll a r, c l os in g a t N 1, 540/$$ from N1,620/$ $, a 7.41% increase.$

$T h e o ff i c ia l e x c han g e r a t e a l so s t abi l i ze d, c l os in g a t N 1, 496/$$ in the Nigerian Autonomous Foreign Exchange Market (NAFEM), narrowing the gap between the official and parallel market rates. This convergence is a positive sign, indicating progress towards a unified forex market, which could reduce speculation and arbitrage.

But here’s the crucial question: at what cost? The CBN’s interventions, while bolstering the naira, appear to be drawing down reserves. This raises concerns about the long-term sustainability of this strategy. A lower reserve level could potentially affect Nigeria’s credit rating and investor confidence, making it more expensive for the government to access international capital markets.

“The depletion of external reserves has also raised concerns over Nigeria’s capacity to meet external debt obligations,” a critical point that demands attention. Nigeria holds significant foreign debt, and a decline in reserves could weaken its ability to meet these obligations.

Moving forward, Nigeria must address its structural economic challenges. Diversifying the economy, boosting domestic production, and tackling oil sector inefficiencies are crucial steps. As a news writer, I believe that informed public discourse is essential for navigating these complex economic issues. We must critically examine the data, understand the implications, and hold our institutions accountable.