Nigeria’s foreign exchange reserves fell sharply by $832.62 million between January 6 and January 21, 2025, marking the largest two-week decline since April 2024.
Data from the Central Bank of Nigeria (CBN) shows that gross external reserves dropped from $40.92 billion to $40.09 billion, a decrease of 2.03%.
This steep decline has raised concerns about the country’s external liquidity position and its ability to manage foreign exchange market pressures.
Experts warn that if the trend persists, reserves could fall below the critical $40 billion threshold by the end of January 2025.
CBN data reveals a consistent decline in reserves throughout the review period. On January 13, reserves dipped to $40.56 billion, marking the first significant drop in the month.
By January 15, they had slipped further to $40.42 billion and eventually reached $40.09 billion on January 21.
The sharp drop follows a period of relative stability and growth in reserves over the past five months, signaling renewed challenges for Nigeria’s external accounts.
Financial analysts attribute the decline to several factors, including: Increased Demand for Foreign Exchange; External Debt Servicing: The Nigerian government has ramped up debt repayments, drawing down reserves significantly and Capital Flight: Investors seeking to hedge against macroeconomic risks are pulling funds out of the country.
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These pressures are compounded by existing fiscal and monetary challenges, including sluggish economic growth, a large debt burden, and inflationary pressures.
The depletion of reserves could limit the CBN’s ability to intervene in the foreign exchange market to stabilize the naira, which has already faced significant devaluation pressures in recent months.
In December 2024, the naira stabilized briefly after sustained interventions by the CBN, but the current trend suggests renewed vulnerability.
Economic analyst Dr. Olufemi Adesina commented, “The decline in reserves indicates that Nigeria’s external position remains fragile. Without adequate buffers, the CBN’s ability to defend the naira is compromised, which could lead to further depreciation and inflationary pressures.”
This recent decline echoes a similar trend seen in April 2024 when reserves plunged by $2.16 billion within a month, dropping from $34.45 billion on March 18 to $32.29 billion by April 15.
At the time, CBN Governor Yemi Cardoso attributed the fall to debt repayments and standard financial obligations, rather than currency stabilization efforts.
Dr. Adeola Fashola, an economist at Lagos Business School, noted, “The parallels between the April 2024 decline and the current situation are concerning. Both periods highlight the structural weaknesses in Nigeria’s foreign exchange management system and the country’s heavy reliance on oil revenues.”
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The rapid depletion of reserves has significant implications for Nigeria’s economic stability. With reserves at a two-month low, the government faces limited room to maneuver in addressing external shocks or fulfilling financial obligations.
Additionally, the decline could deter foreign investors and exacerbate capital flight. “Investors are closely watching Nigeria’s reserves. A continued decline signals instability, which is a red flag for foreign direct investment,” said financial analyst Bola Ogundipe.
Experts have called for urgent structural reforms to address Nigeria’s forex challenges, including diversifying revenue sources, improving the business environment, and reducing reliance on oil exports.
“Nigeria needs to break the cycle of dependency on oil revenues and focus on creating a more resilient economy,” said Dr. Fashola. “Only then can we build a sustainable external reserve position.”
As the reserves approach a critical level, all eyes remain on the CBN and the government’s next steps to address the mounting economic pressures.