…As CBN boosts dollar sales to BDCs
Nigeria’s foreign exchange (FX) reserves experienced a significant decline of $1.16 billion in January 2025, effectively reversing the $592.58 million gain recorded in December 2024.
The latest data from the Central Bank of Nigeria (CBN) shows that reserves dropped from $40.88 billion at the close of December to $39.72 billion by January 31, 2025.
This marks the sharpest monthly decline since April 2024, sparking concerns about the country’s external liquidity position.
CBN records indicate a steady reduction throughout the month, with reserves falling from $40.88 billion on January 2 to $40.75 billion by January 10. The decline accelerated in the latter part of the month, dipping below the $40 billion threshold on January 22 before closing at $39.72 billion by the end of the month.
The $1.16 billion reduction represents a 2.84% drop in just one month, raising questions about Nigeria’s ability to meet external obligations, including debt repayments and import financing.
The last time Nigeria saw such a sharp fall in reserves was in April 2024, when the FX reserves fell by approximately $2.16 billion in 29 days, amidst the CBN’s efforts to stabilise the naira.
As of April 15, 2024, Nigeria’s foreign exchange reserves had fallen to $32.29 billion, down from $34.45 billion on March 18, 2024. CBN Governor, Yemi Cardoso, attributed the previous drop to debt repayments and other regular financial obligations, rather than actions to defend the naira.
The January decline follows the CBN’s increased dollar sales to Bureau De Change (BDC) operators, part of efforts to stabilise the naira amid ongoing currency volatility. Despite the concerns, the CBN has maintained that its strategy aims to restore confidence in the FX market by ensuring liquidity at the retail level.
The CBN resumed dollar sales to BDCs in December 2024, injecting foreign exchange into the retail segment to curb speculative pressure on the naira. A circular issued by the CBN granted BDC operators temporary permission to purchase up to $25,000 per week in FX from the Nigerian Foreign Exchange Market (NFEM).
Under this directive, BDCs are permitted to purchase FX from a single Authorized Dealer of their choice, provided they fully fund their accounts before accessing the market. These transactions are carried out at the prevailing NFEM rate, with BDCs required to observe a maximum 1% spread when pricing FX for retail customers. This arrangement was initially in effect from December 19, 2024, to January 30, 2025.
However, the CBN extended the deadline for BDC operators to access the NFEM for weekly FX purchases. In a circular dated Monday, February 3, 2025, Dr W.J. Kanya, Acting Director of the CBN’s Trade & Exchange Department, announced that the deadline would now be extended to May 30, 2025.
This intervention has eased pressure on the parallel market, with exchange rates gradually converging with the official rate. The naira closed January 2025 at N1,475/$1 on the NFEM, marking its strongest performance since June 2024. This is a notable improvement from its closing rate of N1,535/$1 on December 31, 2024, representing a N60 gain or a 3.91% increase month-on-month.
Nigeria’s external reserves had decreased by approximately $1.19 billion in just three weeks and five days. Data from the CBN shows that gross external reserves reached a high of $40.92 billion on January 6, 2025, after closing the previous year at $40.88 billion. However, the reserves started to decline steeply, falling from $40.56 billion on January 13, 2025, to $39.72 billion by January 31.
The CBN has yet to publish the position of the external reserves for February 2025, with the new month already underway.
Bismarck Rewane’s Financial Derivatives Company (FDC) has projected that Nigeria’s gross external reserves will decline by 11.47% in 2025, reaching $36.21 billion, before recovering slightly to $37.65 billion in 2026. This would be a decrease from the 2024 high of $40.9 billion.
FDC analysts also expect the Dollar/Naira exchange rate to average N1,586 in 2025 and N1,575 in 2026, compared to an average rate of N1,615 in 2024.
The naira recently appreciated to an eight-month high of N1,474.78/$1 on the official FX market, as demand for the dollar eases due to a series of fiscal and monetary policies from the government. In the black market, the naira strengthened to N1,595/$1 from the previous day’s N1,599.33, driven by reduced demand for the dollar and various measures taken by the CBN.
The CBN has extended the temporary access granted to BDC operators to purchase foreign exchange from the Nigerian Foreign Exchange Market (NFEM), to meet retail market demand for invisible transactions until May 30, 2025.
Nigeria also successfully returned to the international debt market after more than two years, issuing $2.20 billion in Eurobonds. The issuance, split into two tranches—$700 million maturing in 2031 and $1.5 billion maturing in 2034—was met with strong investor demand, generating an order book exceeding $9 billion, as yields on Nigerian bonds were more attractive compared to those from other sub-Saharan African countries.
While the decline in reserves has been attributed mainly to international debt servicing obligations and FX interventions by the CBN, informed sources have pointed out that reserves are used for various purposes beyond CBN interventions. They noted that reserves are also used for external loan repayments, coupon payments on Eurobonds, and USD-based spending as outlined in the national budget.
One source highlighted that, while the CBN’s involvement in the FX market is less than 10%, it is not currently focused on defending the naira, which is appreciating.
Some observers have 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 significant debt obligations.
CardinalStone analysts, in their 2025 economic outlook, “Pressure to the Plateau,” forecast that Nigeria’s Eurobond maturities will average $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion. Despite this, the analysts noted that Nigeria’s external debt ratios, such as external debt service to exports, remain within the thresholds prescribed by the International Monetary Fund (IMF).
Nigeria’s foreign debt servicing expenditures totalled $3.6 billion from January 31 to September 30, 2024, representing a 39.8% increase—$1.02 billion more than the $2.6 billion spent during the same period in 2023, according to CBN data on international payments.