Reserves Drop Raises Concern Over Foreign Exchange Stability
Nigeria’s external reserves have dropped by approximately $1.19 billion in just three weeks and five days, raising fresh concerns about the country’s ability to meet its foreign obligations and stabilize the exchange rate.
According to data from the Central Bank of Nigeria (CBN), the gross external reserves, which ended 2024 at $40.877 billion, briefly climbed to $40.920 billion on January 6, 2025, before embarking on a steep decline. By January 31, 2025, the reserves had plummeted to $39.723 billion, marking a significant reduction within a short period.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026): big discounts for early bird.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab: From Technical Design to Deployment (next edition begins Jan 24 2026).
This rapid decline comes as the CBN has yet to publish the external reserves figures for February, fueling speculation about the state of Nigeria’s foreign exchange (FX) buffers. Analysts warn that the ongoing depletion of reserves could further strain Nigeria’s economic stability, particularly in the face of mounting debt repayment obligations and exchange rate volatility.
A report by Financial Derivatives Company (FDC), led by renowned economist Bismarck Rewane, projects that Nigeria’s gross external reserves will drop by 11.47% in 2025, reaching $36.21 billion, before recovering slightly to $37.65 billion in 2026. This projection highlights the persistent economic headwinds facing Africa’s fourth-largest economy.
The exchange rate outlook is equally concerning. The FDC analysts forecast that the dollar/naira exchange rate will average N1,586/$ in 2025 and N1,575/$ in 2026, compared to an average rate of N1,615/$ in 2024, indicating continued volatility in Nigeria’s currency markets.
Naira Strengthens Temporarily Amid Policy Adjustments
However, the naira appreciated recently, hitting an eight-month high of N1,474.78/$ at the official foreign exchange market, as dollar demand eased. In the parallel market, the naira strengthened slightly, trading at N1,595/$, compared to N1,599.33/$ the previous day.
This temporary stabilization has been attributed to a combination of CBN policies, including increased FX market interventions, tighter liquidity controls, and the extension of BDC access to FX, allowing Bureau De Change operators to continue buying directly from the Nigerian Foreign Exchange Market (NFEM) until May 30, 2025.
Nigeria Returns to Eurobond Market Amid Debt Pressures
As the CBN grapples with dwindling reserves, the Nigerian government has returned to the international debt market for the first time in over two years, issuing $2.2 billion in Eurobonds to boost foreign reserves and finance the budget deficit.
The issuance, which was oversubscribed, was structured into two tranches:
- $700 million maturing in 2031
- $1.5 billion maturing in 2034
Despite attracting strong investor demand, and generating an order book of over $9 billion, the issuance has also increased Nigeria’s external debt burden, adding further pressure to foreign exchange reserves and debt servicing obligations.
Nigeria’s foreign debt servicing costs continue to surge, significantly contributing to the declining reserves. According to CBN data, Nigeria spent $3.6 billion servicing external debt between January 31 and September 30, 2024, representing a 39.8% increase from $2.6 billion in the same period of 2023.
Analysts at CardinalStone Partners have warned that Nigeria’s Eurobond maturities, averaging $1.33 billion annually over the next decade, will continue to drain reserves. When coupon payments are factored in, annual debt servicing costs could exceed $2.24 billion, adding further pressure to the country’s foreign exchange reserves.
“Debt repayment and servicing costs are likely to remain high in the near to medium term. However, Nigeria’s external debt-linked ratios remain within the IMF’s prescribed thresholds,” the analysts stated in their 2025 economic outlook report, “Pressure to the Plateau.”
Some financial experts have argued that Nigeria may have been better off waiting until 2025 to issue Eurobonds, when the U.S. Federal Reserve is expected to lower interest rates, potentially making borrowing cheaper for emerging markets.
While the CBN attributes the decline in reserves to debt servicing and FX interventions, a financial expert who spoke on anonymity notes that the full picture is more complicated.
“Reserves are used for many reasons, not just by the CBN. When Nigeria repays external loans, pays Eurobond coupons, or makes USD-based expenditures from the budget, all these withdrawals affect reserves,” the expert explained.
Additionally, the expert dismissed speculation that the CBN was actively defending the naira, arguing that the volume of its market intervention is below 10% and that the recent appreciation of the naira was not artificially engineered.
The Naira Remains Weak on the Back of Reserves Growth
Against the backdrop of dwindling reserves, Nigeria’s gross external reserves had actually risen before this recent decline, climbing from $33.85 billion in October 2023 to $40.92 billion in January 2025. Additionally, the CBN recently announced that it had cleared all outstanding FX obligations, which had been a major factor in market uncertainty.
However, despite these positive developments, the naira’s performance in the FX market has not shown significant improvement. The currency remains volatile, fluctuating between N1,474 and N1,600 per dollar in various markets.
Economic experts have warned that if Nigeria fails to increase FX inflows through higher non-oil exports, remittances, and foreign direct investment (FDI), the country may continue to struggle with exchange rate volatility, even as reserves fluctuate.