The Central Bank of Nigeria (CBN) has reported a substantial decline in the country’s foreign exchange reserves, with a significant drop of $832.62 million recorded between January 6 and January 21, 2025. Since April last year, this reduction has been the sharpest fall, as reported in the data published on their official website. As of January 6, Nigeria’s gross external reserves stood at $40.92 billion. However, by January 21, the reserves had decreased to $40.09 billion, reflecting a 2.03 percent drop over the two weeks.
This decline follows about five months of relative stability and growth in the foreign exchange reserves, signalling a reversal of the earlier positive trend. If the current downward continues, the reserves could fall below the critical $40 billion threshold by the end of the month. Throughout the period under review, the reserves experienced a steady decline. On January 13, they fell below $40.6 billion for the first time in the month, settling at $40.56 billion. By January 15, the reserves had further reduced to $40.42 billion before reaching $40.09 billion on January 21.
Comparisons with past declines and their implications.
Furthermore, the period saw significant losses, with a drop of $167.1 million between January 10 and January 13 and a total reduction of $502.5 million between January 6 and January 13. The cumulative decrease of $832.62 million over the two weeks has sparked concerns regarding the CBN’s ability to stabilise the Naira and meet financial obligations. This has drawn comparisons to a similar episode in April 2024, when reserves plunged by $2.16 billion within 29 days. Back then, the CBN governor, Yemi Cardoso, attributed the decline to debt servicing obligations rather than efforts to stabilise the naira.
However, this decline is likely driven by increased demand for foreign exchange to Finance imports, External Debt repayments, and capital flight. Despite the challenges posed by declining reserves, the naira has exhibited relative stability in the official market throughout January 2025. The currency has traded between ₦1,548/$ and ₦1,552/$ within the period. On January 24, the naira marginally appreciated by 0.01 percent at the Nigerian Foreign Exchange Market (NFEM), trading at ₦1,552.58/$ compared to ₦1,552.78/$ the previous day.
Structural economic challenges and historical context.
Beyond short-term forex market dynamics, the country’s economic challenges are structural issues. The Revenue generation’s heavy reliance on crude oil exports has made the Economy vulnerable to fluctuations in global oil demand. In the 1980s, rising global oil demand fueled economic progress, boosting Government Revenue and job creation. However, the subsequent crash in oil prices in the mid-1980s severely impacted the revenue stream, leading to an economic crisis characterised by declining oil revenues, rising external debt, and currency devaluation.
During the 1980s crisis, the nation experienced notable economic hardships. The decline in oil revenue led to increased external borrowing, creating a heavy debt burden for the government. The Devaluation of the naira made imports more expensive, contributing to inflationary pressures. As economic stagnation took hold, high Unemployment rates emerged, leading to widespread social unrest and political instability. The current economic landscape bears similarities to these past challenges, with ongoing struggles such as low Manufacturing output, economic hardships, and high fuel prices exacerbating the situation.
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Looking ahead, these challenges can be addressed with a multifaceted approach. The government need to implement measures to diversify the economy away from oil exports and empower local production. Strengthening the manufacturing sector, promoting non-oil exports, and attracting Foreign Direct Investment (FDI) could provide the country with a more sustainable revenue base. On the other hand, efforts to curb capital flight and enhance investor confidence through sound fiscal and monetary policies will be critical in stabilising the economy.