Nigeria’s external reserves took a heavy hit in February 2025, shedding $1.31 billion even as the naira showed signs of strength against major foreign currencies.
This decline has sparked fresh concerns about the country’s economic stability and its ability to manage external debt.
Data from the Central Bank of Nigeria (CBN) shows that reserves fell from $39.72 billion on January 31 to $38.42 billion by February 28. This is a 3.3% drop in just one month. This was a sharper decline than the $1.16 billion depletion recorded in January, underscoring the ongoing pressure on the nation’s external finances.
Throughout February, the reserves followed a relentless downward trajectory with no single day of growth. By mid-month, reserves had fallen below $39 billion, and by the end of the month, they had reached their lowest point at $38.41 billion.
Why Are Nigeria’s Reserves Shrinking?
The consistent drop in reserves is largely attributed to Nigeria’s high dependence on imports and the CBN’s efforts to stabilize the naira. While these interventions have helped the local currency gain value, they’ve also drained external reserves, which the CBN uses to supply liquidity and defend the naira in the foreign exchange market.
Despite a recent rebound in global oil prices, Nigeria’s oil production challenges, including crude theft and pipeline vandalism, have kept forex inflows from the sector weak. This has limited the CBN’s ability to replenish reserves.
Moreover, Nigeria’s high import bill for industrial goods and food supplies continues to exert pressure on foreign exchange, with more dollars flowing out than coming in.
Even amid shrinking reserves, the Naira made a surprising comeback in February, marking its strongest performance so far this year.
The naira appreciated by 7.41% against the US dollar, closing the month at N1,540/$ compared to N1,620/$ at the start of February. It also gained against the British pound and the euro, rising to N1,910/£ (a 4.5% increase) and N1,550/€ (up 6.34%), respectively.
At the official exchange window, the naira closed at N1,496/$, bringing the gap between official and parallel market rates closer than it’s been in months. This move toward rate convergence suggests the CBN’s forex policies may finally be reducing speculation and market distortions.
The continuous depletion of reserves raises serious concerns about Nigeria’s ability to meet its external debt obligations. With significant foreign debt on its books, the country risks higher borrowing costs and a possible downgrade in its credit rating if reserves continue to fall.
Investor confidence is also on the line. A shrinking reserve base could make international investors wary, especially if Nigeria’s ability to maintain liquidity and pay its debts comes into question.
As the naira gains strength, the big question remains: how long can the CBN sustain these efforts without further eroding external reserves? And at what cost to the country’s long-term economic health?
For now, the signs are mixed: a stronger naira, but at the expense of dwindling reserves. And as global economic pressures mount, Nigeria’s balancing act grows more delicate by the day.
Source: Ripples