In February 2025, Nigeria experienced a decline in its foreign exchange reserves by $1.31 billion, indicating ongoing external pressures despite the recent strengthening of the naira. Data released by the Central Bank of Nigeria revealed that the reserves dropped from $39.72 billion on January 31, 2025, to $38.42 billion by February 28, 2025, marking a 3.3% decrease within the month. This decline in February surpassed the $1.16 billion decrease seen in January, emphasizing the persistent strain on the country’s external reserves.
The consistent depletion of reserves has sparked concerns, with speculations arising that the central bank’s continuous interventions in the foreign exchange market to enhance liquidity and stabilize the naira may be contributing to the reduction in external reserves. Despite this, the local currency exhibited significant strength against major foreign currencies in February, indicating that the efforts of the Central Bank of Nigeria have had some positive effects in rebuilding market confidence.
Throughout February, Nigeria’s reserves displayed a downward trend with no instances of increase. Starting at $39.60 billion on February 3, the reserves steadily decreased to $38.41 billion by February 28. Factors contributing to the decline in reserves include Nigeria’s heavy reliance on imports, particularly of industrial goods and food supplies, resulting in substantial foreign exchange outflows. Additionally, challenges in oil production, crude theft, and pipeline vandalism have hindered forex inflows from the oil sector, further limiting the country’s ability to bolster reserves.
The dwindling external reserves have also raised concerns regarding Nigeria’s capacity to meet external debt obligations, given its significant foreign debt holdings. A further decrease in reserves could potentially impact the country’s ability to fulfill debt repayments promptly, potentially raising borrowing costs. Moreover, a lower reserve level could influence Nigeria’s credit rating and investor confidence, making it more costly for the government to access international capital markets.
Despite the declining reserves, the naira displayed notable gains against major foreign currencies in February, achieving its strongest performance since the year began. By the end of the month, the naira appreciated against the US dollar, closing at N1,540/$ from N1,620/$ at the beginning of the month, marking a 7.41% increase. The naira also strengthened against the British pound and the euro, showcasing improvements in its exchange rates.
The official exchange rate followed a similar pattern, stabilizing above N1,500/$ towards the end of February. Data from the Nigerian Autonomous Foreign Exchange Market indicated a closing rate of N1,496/$ at the official window, suggesting a potential convergence between the official and parallel market rates. This alignment could signify Nigeria’s progression towards a unified forex market, potentially reducing speculation and arbitrage that have previously contributed to forex volatility.