“Nigeria’s Forex Reserves Drop by 12%, Threatening Recent Naira Gains”

Nigeria’s foreign exchange reserves have seen a significant decline, dropping by 12% in the past six months, which poses a serious threat to the recent gains made by the naira.

As of February 2025, the country’s forex reserves stood at $31 billion, down from $35 billion in August 2024. This sharp decline is raising concerns about the sustainability of the naira’s recent stability, particularly against the backdrop of mounting pressure on Nigeria’s economy.

The recent weakening of forex reserves comes amid ongoing challenges, including fluctuating oil prices, which have been a key driver of Nigeria’s foreign exchange inflows. While oil prices have recently shown some strength, the volatility in global markets has continued to affect the country’s forex liquidity.

Despite these challenges, the Central Bank of Nigeria (CBN) has made strides in stabilizing the naira, particularly after the introduction of more flexible exchange rate policies in 2024. The naira had recently gained ground against the US dollar, trading at 800 naira to the dollar in February, compared to over 900 naira earlier in the year. However, the decline in forex reserves raises questions about the sustainability of this improvement.

Nigeria’s forex reserves have historically been vulnerable to external shocks, including fluctuations in global oil prices, which the country heavily relies on for revenue. The reduction in reserves could limit the CBN’s ability to support the naira through interventions, especially as demand for foreign exchange remains high due to the country’s import-heavy economy.

Economists are warning that without a significant boost in forex reserves or a sustained increase in oil revenue, the naira’s recent gains could be short-lived.

In response, the Nigerian government is exploring alternative avenues to boost reserves, including diversifying its export base and increasing foreign investment in sectors beyond oil.

As the country navigates these economic challenges, the management of forex reserves will play a critical role in shaping the future stability of the naira and the broader Nigerian economy.