Nigeria’s FX reserves shrink, sparks naira float speculation

Alex Omenye
Alex Omenye

The Nigerian foreign reserves are depleting at a pace not observed in four years, sparking concerns that the central bank is using its dollar holdings to bolster the naira’s value following its commitment to allowing the currency to float more freely.

Since March 18, when the naira began its recovery from record lows against the dollar, liquid reserves have declined by 5.6%, reaching $31.7 billion as of April 12, according to Bloomberg’s calculations based on the latest data from the Central Bank of Nigeria. This marks the most significant decline within a similar timeframe since April 2020, as per Bloomberg’s data analysis.

Africa’s largest oil producer has managed to regain most of the ground lost after a 43% devaluation of the naira in January. This came after the Central Bank of Nigeria implemented measures to enhance liquidity, attract capital inflows, and allow the market to determine the naira’s exchange rate. As part of these reforms, the CBN committed to addressing the backlog of pent-up dollar demand.

“The CBN does appear to be using its FX reserves to clear the valid backlog and return the naira to a realistic exchange rate,” commented Charles Robertson, the head of macro strategy at FIM Partners in London. “My assumption is they hope to encourage others – local and foreign investors – to start investing in the local currency and return private sector liquidity to the foreign exchange market.”


Despite the drawdown, Nigeria still maintains a considerable buffer of foreign-exchange reserves, supported by a surge in oil prices and inflows from multilateral loans. With gross reserves standing around $32.6 billion, they cover approximately six months’ worth of imports, according to the International Monetary Fund.

Last month, the central bank announced the clearance of a backlog of overdue dollar purchase agreements estimated at $7 billion since the year’s onset. This backlog had accumulated over the years due to the central bank pegging its currency against the dollar, resulting in a scarcity of foreign currency that discouraged foreign portfolio investment. However, the exact amount of dollar debt retained by the CBN remains unclear.

Foreign portfolio inflows into Nigerian capital markets exceeded $1 billion in February alone, bringing total receipts for the year to at least $2.3 billion, as per the central bank’s data. Despite the recent surge in inflows and anticipated sources of replenishment, concerns persist regarding the sustainability of Nigeria’s foreign-exchange reserves amid ongoing economic uncertainties.

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