Nigeria’s Foreign Reserves Slide by $3bn, Reach Lowest Level in Six Months

Nigeria’s foreign exchange reserves have dropped by $3 billion in under four months, falling to $37.888 billion, their lowest level in half a year, amid fluctuating inflows and sustained interventions by the Central Bank of Nigeria (CBN) in the FX market.

According to recent CBN data, the country’s net foreign exchange position now stands at $23 billion, representing 60% of the total reserves. This indicates that only 40% of the reserves are currently committed or encumbered.

The decline has been attributed in part to a drop in crude oil production and continued volatility in global oil prices, which have dampened government revenue. Analysts have observed that revenue performance has fallen short of projections for 2025, due to both domestic challenges and external uncertainties.

In the first quarter of the year, robust foreign portfolio investment provided a strong boost to FX inflows. However, a recent shift in global investment sentiment has seen offshore investors reduce their exposure to naira-denominated assets. In response, the CBN had offered attractive yields on Treasury and OMO bills to attract foreign capital.

This strategy initially spurred a rally in naira assets, but the recent wave of risk aversion among foreign investors has led to yield adjustments. Analysts also pointed out that the CBN has recently reduced its issuance of OMO bills.

Foreign investors and banks were key players in recent FX inflows via CBN’s OMO auctions. However, with the CBN now holding just one auction per month since February in a bid to reduce balance sheet costs, supply has fallen off significantly.

As a result, pressure has mounted on the FX market in recent weeks. Offshore demand for dollars has surged amid global uncertainty. Coupled with dwindling US dollar inflows and oil prices hovering below $70 per barrel, Nigeria’s fiscal and current account positions remain under strain.