Nigeria’s reserve drops by $2.2bn as FG defends Naira
Nigeria’s foreign reserves have dropped by $2. 2 billion amid concerns of the central bank’s support for the Naira and the settlement of over $2 billion foreign exchange backlog. This is coming on the heels of comments by the Chief Executive Officer of Financial Derivatives, Bismark Rewane, where he stated that the Central Bank of […]
Nigeria’s foreign reserves have dropped by $2. 2 billion amid concerns of the central bank’s support for the Naira and the settlement of over $2 billion foreign exchange backlog.
This is coming on the heels of comments by the Chief Executive Officer of Financial Derivatives, Bismark Rewane, where he stated that the Central Bank of Nigeria (CBN) had spent $8.8 billion defending the Naira.
In its recent investors note, AIICO Capital Limited emphasised that trading activity was robust, with transactions occurring within the $/N1,490.00 to $/N1,520.00 per US dollar range, saying the Naira will continue to trade at the current level.
By analysts’ consensus, the money pricing was majorly influenced by the CBN intervention. Daily Trust gathered that the authority intervened in the foreign exchange market, selling US$66.80 million to authorised dealer banks. The sustained FX sales to banks also bolstered FX supply to Bureau de Change.
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Hence, the Naira gained N8.62 and N50.00 to close at $/N1,501.08 and $/N1,510.0 in the official and parallel markets, respectively.
According to TrustBanc Financial Group Limited, Nigeria’s FX reserves level declined by USD300.11 million week on week to USD38.74 billion, marking the 6th consecutive week of decline.
Checks show that the forex reserves shrank by $2.2 billion since hitting a $40.92 billion high on Jan. 6, according to data compiled by Bloomberg.
The slide is the longest since November 2022 and is set to take Nigeria’s reserves to the lowest level since October.
Before then, foreign reserves stood at $42bn on December.
How FX reserves fell by $1.16 billion in January
The foreign exchange (FX) reserves declined significantly by $1.16 billion in January 2025, wiping out the $592.58 million gain recorded in December 2024.
The figures from the Central Bank of Nigeria (CBN) show that reserves fell from $40.88 billion at the end of December to $39.72 billion as of January 31, 2025. This marks the sharpest monthly decline since April 2024.
What the data showed
CBN data reviewed by Daily Trust indicates a steady decline throughout the month, with reserves dropping from $40.88 billion on January 2 to $40.75 billion by January 10.
The decline accelerated in the latter half of the month, falling below the $40 billion threshold on January 22 and closing at $39.72 billion by month-end.
The $1.16 billion drop in January represented a 2.84% decline in just one month.
The last time Nigeria experienced such a sharp drop in reserves was in April 2024, when reserves fell significantly.
The CBN governor, Yemi Cardoso, blamed the previous decline in April 2024 on debt repayments and other standard financial obligations, rather than efforts to defend the Naira.
Why the reserve is declining
The January decline follows the CBN’s increased dollar sales to Bureau De Change (BDC) operators as part of efforts to stabilise the Naira.
The CBN at various fora has maintained that its strategy aims to restore confidence in the FX market by ensuring liquidity at the retail end.
The CBN resumed dollar sales to BDCs in December, injecting foreign exchange into the retail segment.
In a circular, the CBN granted BDC operators temporary permission to purchase up to $25,000 weekly in FX from the Nigerian Foreign Exchange Market.
Under the directive, BDCs may purchase FX from a single Authorized Dealer of their choice, provided they fully fund their accounts before accessing the market.
The transactions will occur at the prevailing NFEM rate, and BDCs are required to adhere to a maximum 1% spread when pricing FX for retail end-users.
The arrangement was to be in effect from December 19, 2024, to January 30, 2025.
However, the CBN has extended the deadline for BDC operators to access the NFEM for weekly FX purchases.
In a circular signed by Dr. Williams Kanya, the Acting Director of the Trade & Exchange Department at the CBN, the apex bank, announced that the previous deadline of January 31, 2025, has now been extended to May 30, 2025.
$2.4bn FX backlog payments
Governor Cardoso at the MPC hosted last Friday also hinted at the conclusion of the verification process for the remaining $2.4 billion foreign exchange (FX) backlog, with payments for valid claims set to begin.
Cardoso noted that the FX backlog, which stood at $7 billion when he assumed office, has now been reduced to $2.2 billion. In March last year, he stated that all valid claims had been settled, leaving $2.4 billion flagged as potentially invalid after an investigation.
Allowing free float will put Naira at N1800/$ – Dr Alaje
Chief Economist, SPM Professionals, Dr Paul Alaje in an exclusive chat with Daily Trust said: “Clearly, central banks have been intervening in the markets. On a weekly basis, 25,000 go to BDCs and at the E-Window, just to make sure that we control the destiny of our currency.
“I think at first, we played into the hands of absolute flotation. Those who championed that cause are today saying that PPP should be used to determine the value of Naira and it should be around 1,100.
“The question should be at what cost and to what extent? If they don’t, I promise you, the exchange rate will be around 1,800 today. And the trajectory for the end of the year would have been around N2,500.”
He argued that intervening to bring stability is perhaps one of the ways central banks can reduce the impact.
“What is the cost? We are seeing the cost on our reserve. But the question is, if they are intervening, does it mean that we cannot promote exports? Fiscal and trade authorities have a responsibility to promote exports.
“Because if we say that we just want to keep the dollar and warehousing it, what happens? The money will get devalued. Life will be tougher. “
Speaking on the sustainability of the intervention, Alaje said: “We do not have a robust reserve in the long run. But in the medium term, we need to do it. When we do it, the government by now should be making policies to promote exports, that is what is missing, and this has been missing in the last 15 years”.