Nigeria’s External Reserve Drops By $1.19bn In Less Than One Month

Nigeria’s External Reserve Drops By $1.19bn In Less Than One Month

1 week ago
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Nigeria’s external reserve has dropped by $1.19 billion in just three weeks and five days, according to data from the Central Bank of Nigeria (CBN). The gross external reserve, which stood at $40.920 billion on January 6, 2025, declined steadily to $39.723 billion by January 31, 2025.

Despite the noticeable decrease, the CBN has yet to release updated data on the reserve level for February. Analysts and financial experts are monitoring the situation closely as concerns grow over Nigeria’s forex stability and international obligations.

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Analysts Predict Further Drop in External Reserve

A recent report by the Bismarck Rewane-led Financial Derivatives Company (FDC) forecasts that Nigeria’s external reserve will continue to decline.

“We expect Nigeria’s gross external reserves to drop by 11.47 percent in 2025 to $36.21 billion and further to $37.65 billion in 2026. This is from a high of $40.9 billion in 2024,” FDC analysts stated.

They also projected that the exchange rate would average N1,586 per dollar in 2025 and N1,575 in 2026. This is slightly lower than the N1,615 per dollar recorded in 2024.

Naira Appreciates Despite Declining Reserves

Despite the drop in external reserves, the naira has recently strengthened against the dollar. The local currency appreciated to N1,474.78 per dollar in the official foreign exchange market, marking an eight-month high. The appreciation is attributed to several government fiscal and monetary policies.

At the parallel market, the naira also gained value, trading at N1,595 per dollar, compared to N1,599.33 per dollar the previous day. Experts attribute this trend to reduced demand for dollars and CBN’s intervention measures.

CBN Extends BDCs’ Access to Forex

To ease forex availability, the CBN has extended the temporary access granted to Bureau De Change (BDC) operators to purchase foreign exchange from the Nigerian Foreign Exchange Market (NFEM). The extension, which now runs until May 30, 2025, is aimed at ensuring forex availability for retail transactions.

READ ALSO: Nigeria’s External Reserves Drop Slightly To $40.912bn

Nigeria Issues $2.2 Billion Eurobonds

Nigeria has successfully returned to the international debt market for the first time in over two years, issuing $2.2 billion in Eurobonds. The issuance was split into two tranches: $700 million maturing in 2031 and $1.5 billion maturing in 2034.

The bonds received strong investor demand, generating an order book exceeding $9 billion. Analysts suggest that the high demand was due to the attractive yields on Nigerian instruments compared to other recent issuances from sub-Saharan Africa.

Experts Explain Reasons for Falling External Reserve

Financial analysts have attributed the decline in external reserves to international debt servicing obligations and foreign exchange interventions by the CBN. An informed source explained the situation:

“Reserves are used for many reasons and not just by the CBN. When we repay external loans, pay coupons on Eurobonds, or spend in USD based on budgetary allocations, where do you think the money comes from?” the source said.

The source also dismissed speculations that the CBN was using reserves to defend the naira.

“I don’t monitor reserves, but I know that there has been nothing done by the CBN that remotely resembles defending the naira. The naira is appreciating, so there is no need to defend it. The volume of CBN involvement in the forex market is less than 10 percent,” the source added.

Nigeria Faces Rising Debt Servicing Costs

Looking ahead, Nigeria faces significant debt obligations. According to CardinalStone analysts, Nigeria has Eurobond maturities averaging $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion.

“Some observers argued that Nigeria might have been better off waiting until 2025, when moderating U.S. inflation could lead to lower interest rates from the Federal Reserve. Looking ahead, Nigeria faces some notable debt obligations,” the analysts noted in their 2025 economic outlook titled “Pressure to the Plateau.”

They further stated, “Aside from 2026, the country has Eurobond maturities averaging $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion.”

Despite the growing debt burden, CardinalStone analysts believe that Nigeria’s external debt ratios remain within acceptable limits.

“Debt repayment and servicing costs are likely to remain high in the near to medium term, but we reiterate that the country’s external debt-linked ratios (such as external debt service as a percentage of exports, external debt to exports, and debt service to exports) are still within the IMF’s prescribed thresholds,” the report stated.

CBN Reports Rising Debt Servicing Expenditures

Nigeria’s foreign debt servicing expenditures totaled $3.6 billion over the nine months from January 31 to September 30, 2024. This marks a 39.8 percent increase from the $2.6 billion recorded in the same period of 2023. The data, released by the CBN, highlights the growing financial pressure on the country’s external reserves.

As Nigeria navigates these economic challenges, analysts and policymakers will continue to monitor the country’s external reserve levels and their implications for the economy.

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Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.

Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.

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