Nigeria’s foreign reserves depreciated by $2.55 billion in the first quarter (Q1) of 2025.

According to data obtained from the Central Bank of Nigeria (CBN), TheCable Index analysis showed that the foreign reserves declined by 6.23 percent from $40.88 billion reported on January 2 to $38.33 billion on March 27.

Analysis further showed that the decline is the highest in the first quarter of the last five years.

In Q1 2024, the foreign reserves declined by $810.66 million (2.45 percent); in Q1 2023, it dropped by $1.57 billion (4.24 percent); during the same quarter the next year, the external reserves depreciated by $971.35 million (2.39 percent); and in Q1 2022, the foreign reserves dwndled by $827.34 million (2.32 percent).

NIGERIA’S FOREIGN INVESTMENT DROPPED BY 30% WITHIN REVIEWED PERIOD

The decline in the foreign reserves coincides with a drop in foreign portfolio investment (FPI) during the first quarter.

According to data obtained from the Nigerian Exchange Limited (NGX), TheCable Index analysis showed that the FPI declined by 30.3 percent between January to February.

The NGX has not released March data.

In January, NGX reported that Nigeria recorded $17.35 million in foreign direct investments through equities; however, in February, the foreign inflow dropped to $12.09 million.

During the same period, foreign outflows outstripped foreign inflows each month, with $31.01 million recorded in January and $16.48 million reported the next month.

The data on foreign direct investments (FDI) for the period is yet to be released.

‘LOW PETRODOLLAR, CBN INTERVENTION CONTRIBUTED TO EXTERNAL RESERVES DECLINE’

The decline in foreign reserves in Q1 2025, according to Charles Abuede, the research lead at Cowry Asset Management Limited, indicates a lack of foreign exchange (FX) inflows into the economy.

Abuede said “minimal petrodollar earnings” and the CBN’s intervention in the FX market to support the naira through the sale of $25,000 weekly to bureau de change (BDC) operators are possible contributors to the decline.

“The depletion of Nigeria’s foreign reserves in the first quarter of 2025 clearly indicates a lack of foreign exchange (FX) inflows into the economy,” he said.

“This is largely due to minimal petrodollar earnings, as crude oil prices remain uncertain, fluctuating between $65 and $70 per barrel.

“It may also reflect the Central Bank of Nigeria’s (CBN) ongoing efforts to defend the Naira, alongside the $25,000 weekly FX sales to Bureau de Change (BDC) operators to maintain liquidity in the market.”

Also, Muda Yusuf, the chief executive officer (CEO), the Centre for the Promotion of Private Enterprise (CPPE), echoed Abuede’s stance, saying that regular interventions by the CBN must have been depleting the reserves gradually.

“Because if we are having that, and we are not having sufficient inflows to balance out those outflows, that could be a possibility. You know, the CBN has been very consistent in defending the currency, which is not a bad idea. What is important is to ensure that we are doing so within a sustainable framework so that it doesn’t create an unnecessary crisis for us,” the economist said.

“Secondly, is the fact that the very depletion of reserves is also possibly triggering some speculative pressure, you know, on the market. In other words, if people begin to look at the trend and they notice that the reserves have been declining, it’s possible that that could also be increasing the pressure of demand, you know, on the foreign exchange market.

“And if demand is increasing, that means the amount that is made available to ensure stability will also be increasing. So, that speculative component is also a possibility. So, mind you, I’m talking about possibilities because I don’t have all the facts. So, that is also a possible factor.

“The third possible factor is the fact that NNPC seems to have stepped up or given a window for increased importation of petroleum products. Now, when we had only Dangote (refinery), substantially, you know, supplying the PMS, I think that there was a reduction in the pressure. Because when you look at our import bill, the importation of petroleum products historically has been about between 30 to 40 percent.

“In other words, the pressure of importation of petroleum products has been accounting for almost 30 to 40 percent of our import bill. So, when you have a situation where the dependence on domestic petroleum refinery is declining because NNPC and some of these agencies in the petroleum downstream or regulators seems to be supporting the continuous importation of petroleum products, that is also a factor. Because the importation of fuel is a significant factor in the pressure on our reserves.”

Yusuf also linked the decline to the drop in FPI, which he said could be worsened by the increase in import tariff in the United States and the possibility of a hike in US interest rate in response to an impending increase in the inflation rate.

“Then, portfolio flows (is another reason). You know, right now, we are beginning to see some geopolitical factors. Now, we are beginning to see a trend of rising inflation in the United States. And the inflation is likely to continue to trend upwards, and it is likely that the Federal Reserve may very soon begin to also tighten monetary policy,” he said.

“Which means that interest rates in the United States may begin to go up any time from now. If Trump continues with his tariff imposition trajectory. That means if interest rates eventually begin to go up in the United States, that may affect portfolio flows.

“Because the returns on investment in those other countries and in other advanced countries may now begin to improve. So, it is also possible that it may have also decelerated the portfolio flows to the economy. So, for me, those are the variables that one can see that may be responsible.

“Then, of course, because I don’t have the data, you know, we have external debt obligations that we need to service. So, if you look at this quarter, some of them had fal due, which also needed to be serviced. So, that is also a possible factor.”

‘FOREIGN RESERVES DECLINE WILL PUT PRESSURE ON NAIRA’

During the reviewed period, the exchange rate in the official window of the FX market was N1,534 per dollar on January 3, compared to N1,539/$ on March 26.

In the parallel market, the value of the local currency appreciated from N1,650/$ to N1,560 per dollar — indicating a 5.45% percent appreciation.

However, Abuede said the decline in the foreign reserves could put pressure on the naira, threatening the gains in Q1.

“This decline will exert further pressure on the local currency, as the apex bank continues its intervention. The key issue is that FX outflows are not being matched by sufficient inflows,” the research lead said.

“The recent, albeit minimal, appreciation of the Naira since January has largely been driven by CBN interventions rather than organic market forces.”

Yusuf also said the decline will fuel speculation in the FX market and create “anxiety about the current stability,” thereby triggering additional pressure on the exchange rates, which may lead to further depreciation in the currency.

“And then there is depreciation, and, of course, you know the implication of that for inflation in particular. And you know the implication of inflation for business performance and for the welfare of the people,” Yusuf said.

WHAT FG, CBN MUST DO TO RAISE FOREIGN RESERVES

Abuede said achieving the 2025 budget target of 2.06 million barrels per day (mbpd) of crude oil production is crucial to increasing the foreign reserves.

He added that diversifying FX sources beyond crude oil will also contribute to the international reserves.

“To mitigate this challenge, Nigeria must ensure a steady influx of FX into the economy. Achieving the ambitious 2025 budget target of 2.06 million barrels per day (mbpd) of crude oil production is crucial,” he said.

“Additionally, diversifying FX sources beyond crude oil and implementing policies that attract foreign investment and boost remittance inflows will be essential in stabilising the currency and strengthening external reserves.”

On his part, Yusuf advised the CBN not to stop what it is currently doing in the FX market to ensure that Nigeria has a market that is liberal and has minimum encumbrances.

“You know, that allows for seamless flow of autonomous funds into the economy,” he said.

“So, the market-driven system has helped that. So, that should be sustained. Because if you look at inflows and outflows relationship over the last one year, we have seen a significant improvement in net flows, you know, into the economy, when you look at outflows of forex and inflows, you know, inflows have been much more than outflows over the last 10 months or so.

“The second other thing has to happen on the fiscal side, and that is about oil production. You know, I am not sure we are still making up our oil output as of now. There are issues around the Niger Delta and this Rivers state crisis is also possibly contributing to it.”

The economist said ramping up production and continued support for all the initiatives around investment in gas could boost the foreign reserves

“Of course, there are also the non-oil exports, which have been increasing over time, but we haven’t gained such critical traction in that yet,” he said.

Yusuf added that the government should also continue to encourage Nigerians in the diaspora to continue to invest in Nigeria through financial instruments and more.