Nigeria’s foreign reserves have been on a downward trajectory for 33 consecutive days. According to data compiled by Bloomberg, the reserves peaked at $40.92 billion on January 6, 2025, but have since fallen by $2.2 billion, reaching approximately $38.72 billion by February 25, 2025.
This decline, the longest since November 2022, has brought reserves to their lowest level since October 2024. The shrinking foreign reserves, according to Bloomberg, threatens the naira’s recent gains. It is not certain if the Central Bank of Nigeria intends to continue its interventions and the impact pausing the impact will have on the exchange rate of the naira.
The 33-day decline in reserves, starting around January 23, 2025, and continuing to February 25, 2025, suggests a sustained effort by the CBN to support the naira. The daily average fall is approximately $66.67 million, calculated as $2.2 billion divided by 33 days, indicating a significant drain on resources.
The depletion is likely driven by the CBN’s sale of dollars to meet forex demand, particularly for imports, and to prevent sharp naira depreciation. The naira’s exchange rate against the US dollar has been stable, with rates at the official CBN rate and the black market around 1,500 per dollar.
The Central Bank’s Costly Defense of the Naira
Over the past several months, Nigeria’s foreign exchange policy has been marked by intervention from the Central Bank of Nigeria (CBN). Noted economist, Bismark Rewane disclosed over last weekend that Nigeria has borrowed $4 billion and spent almost $8 billion in a bid to stabilize the naira at around ₦1,500 per dollar. Rewane’s disclosure about the scale of the Central Bank of Nigeria’s defence of the naira sparked concerns about the adequacy of Nigeria’s forex reserves and the sustainability of the naira’s newfound stability. The exchange rate of the naira at the official CBN market and on the black market has virtually converged.
While acknowledging that the reforms of the CBN under Governor Olayemi Cardoso are yielding fruits, Rewane hinted that the recent stability seen in the exchange rate of the naira is driven more by CBN interventions rather than by underlying economic fundamentals. Rewane advised investors and policymakers not to be misled by short-term movements in the forex market, stressing that the naira remains vulnerable to renewed depreciation.
Rewane Explains the “Cacophony”
Rewane on Monday 24 February during an interview on Arise TV criticised public reaction to the disclosure he made that the Central Bank of Nigeria has spent almost $8 billion to defend the naira, calling for a more enlightened and informed discussion rather than speculative noise. He has pointed out that the CBN’s $8 billion injection into the market is a standard liquidity support measure rather than a game-changing policy shift.
Persistent Decline in Foreign Reserves Raises Alarm
Bloomberg’s data showing that Nigeria’s foreign reserves have declined for 33 consecutive days raises fresh concerns about the CBN’s ability to sustain its forex interventions, especially as external borrowing costs rise. With reserves dwindling and the naira’s stability seemingly reliant on ongoing intervention, the market must now weigh Bloomberg’s cautious outlook against Rewane’s more measured view on the scale of the CBN’s defence of the currency and its sustainability.
