THE Central Bank of Nigeria (CBN) is still supporting the naira despite claims that it is not. Consequently, the external reserves are falling very fast, slumping to an 8-month low in April 2025.
The International Monetary Fund (IMF) defines external reserves or foreign exchange (FX) reserves as “those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitudes of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes.” External reserves are to a nation what savings in the banks are to individuals.
Nigeria’s external reserves fell by $375 million month-on-month to $37.9 billion as at end of April, 2025, which is the fourth consecutive monthly decline this year. This represents a $2.9 billion year-to-date decrease and lowest level since August 2024.
The reserves are falling for many reasons. First, the apex bank is still supporting the naira with external reserves. Between September 6 and September 30 2024, the CBN sold $543.5m at the rate of N1,540 and N1,580 to authorised dealers banks. In October 2024, the CBN spent $383 million buying the naira from local banks to boost FX liquidity in the official window.
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When the apex bank wants to support the naira, it either sells dollars to authorised dealers at cheaper rates or buys dollars from local banks. By so doing, the FX market remains liquid, buffering the naira against shocks that may arise from high dollar demand.
In December 2024, the apex bank granted temporary permission to Bureau de Change (BDC) operators to buy up to $25,000 in foreign exchange weekly from the Nigerian Foreign Exchange Market (NFEM), launched earlier in the month.
In January 2025, Nigeria’s external reserves fell significantly by $1.16 billion in January 2025, wiping out the $592.58 million gain reported in December 2024. This was as a result of the weekly FX purchases by the BDCs.
In February 2025, external reserves declined by about $1.19 billion in just three weeks. In April, the CBN intervened in the foreign exchange (FX) market, selling dollars to authorised dealers valued at $197.71 million. This was meant to protect the naira against President Donald Trump’s tariff punishment against several nations, including Nigeria.
Afrinvest Securities attributed the falling reserves in April to the suspension of the naira-for-crude initiative, stressing that it was beginning to drive FX demand. The naira-for-crude policy was meant to ensure that local crude refiners got crude from the Nigerian National Petroleukm Company (NNPC) in the local currency.
An April 2025 report by AIICO Capital Limited, an investment-focused firm, said the apex bank sold $668.8 million to buffer the naira against further depreciation. The report also alluded to the CBN’s instruction to BDC operators to purchase $25,000 from authorised dealer banks at the official exchange rate.
Apart from deploying foreign reserves to support the naira, the CBN also utilises them to offset Nigeria’s debt servising obligations. Nigeria’s foreign debt servicing stood at $3.6 billion in the nine months to September 30, 2024. The nation spent $2.6 billion on debt servicing in the corresponding period of 2023, according to the CBN’s data.
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Another reason for the decline in external reserves is the falling crude oil prices in the international market. Brent Crude price, which is the benchmark for oil dealers, stood at $65.46 per barrel as at 11.41 am on Tuesday. WTI was $62.51 per barrel at the same time. Oil prices stood above $80 per barrel in January 2025, showing a steep decline in price over the period. When oil prices rise, Nigeria makes more revenue from oil sales and saves more in external reserves.
President Donald Trump’s tariffs are also a major risk for the naira. Trump’s tariff have led to lower oil prices and lower demand for the product.
Naira weakening
The naira is showing signs of weakening, closing at 1,600.43 per dollar at the official market on Monday. This reflects a gain of 0.4 percent from N1,606.15 quoted on Friday. Around this time in May 2024, the naira stood at 1,534/$, representing about 4.3 percent loss over a one-year period.
Analysts say the naira’s fate would worsen if the CBN does not sell dollars to authorised BDCs. “I think it is just the CBN trying everything possible to ensure the naira is stable. Truth be told, the CBN is supporting the naira, which has helped to reduce pressure on the local currency, given the declining oil prices and Trump’s tariffs. I also think that reduction in the demand for dollars by petroleum importers is also a positive for the market this year,” an economist and international monetary economist, Mr Charles Owoh, noted.
According to the FBNQuest Merchant, “While May has opened with early signs of recovery, risks to Nigeria’s reserves persist—driven by weak oil price prospects, OPEC+ supply uncertainty, global inflation pressures, and softer global growth expectations.”
Various experts had projected various numbers for the naira in 2025. While some told Economy Post that the local currency would stand at N1,700/$, others predicted N2000/$, N1,500 or less.
According to Cardinalstone Research, the naira would hover around N1,720.88/$ in 2025 due to several factors such as the CBN introduction of the EFEMS platform, rising foreign reserves, increasing foreign portfolio inflows, greater access to dollar-denominated debt and a positive current account balance.
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Afrinvest Research, on the other hand, had predicted that the naira could depreciate to N1,804.45 in 2025 owing to issues around volatility, noting that the CBN would struggle to meet dollar demands this year.
