Nigeria’s foreign exchange reserves are stabilising and gradually rising to $38.46bn after a four-month decline, driven by the CBN’s counter-measures, efforts to boost non-oil exports, and increased diaspora remittances, despite low global oil prices

After a four-month period of decline, Nigeria’s foreign exchange reserves are beginning a gradual ascent, a development attributed to proactive measures by the Central Bank of Nigeria (CBN) despite persistent low global oil prices.

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The nation’s external reserves, which had dipped in the first four months of the year, stood at $37.9 billion at the end of April.

This decline was largely linked to a significant 16.74 per cent fall in crude oil prices this year, dropping from $73.29 per barrel on January 2 to $62.78 per barrel by May 31.

This dip in oil prices was influenced by the decision of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), to increase production by nearly one million barrels per day (1 mbbl/d) from April to June.

The ongoing decline is a delicate balance of supply-side adjustments, demand uncertainties, and strategic manoeuvres from influential players like Saudi Arabia.

With The Wall Street Journal projecting Brent crude could close 2025 below $50 per barrel, Nigerian policymakers face a formidable challenge.

At $50 per barrel and a production level of 1.5 million barrels per day (mbpd), Nigeria’s oil revenue is projected to fall 10 per cent short of its fiscal breakeven point, potentially pushing the fiscal deficit to six to seven per cent of GDP and exacerbating inflationary pressures.

Meanwhile, sources indicate that eight OPEC+ countries may deliberate on a potential output increase of 411,000 bpd for July.

The depletion of Nigeria’s external reserves by 5.91 per cent this year, from $40.88 billion on January 2 to $38.47 billion on May 29, was exacerbated by fluctuating domestic oil production, which averaged 1.54 mbpd in January but dropped to 1.47 mbpd and 1.4 mbpd in February and March respectively, before recovering slightly to 1.49 mbpd in April.

The depletion of the country’s external reserves by 5.91 per cent this year, from $40.88bn in January 2 to $38.47bn on May 29, was exacerbated by Nigeria’s oil production, which has been oscillating this year.

However, the pressure on external reserves appears to be easing, with a steady rise from $37.93 billion on April 14 to $38.46 billion on May 29.

This positive shift is largely attributed to the Central Bank of Nigeria’s counter-measures aimed at mitigating the impact of the global oil crisis on the domestic economy.

The apex bank is implementing strategies to bolster Nigeria’s export potential by promoting backward integration, thereby reducing the import of locally manufacturable items, and simplifying dollar remittances for Nigerians in the diaspora.

Drawing inspiration from China’s economic strategy, CBN Governor Olayemi Cardoso highlighted that Nigeria’s competitive exchange rate can drive export-led growth.

He encouraged businesses to pursue export-oriented strategies, focusing on high-growth sectors such as agriculture, manufacturing, and creative industries, which he noted has the potential to generate $25 billion annually.

In a related move, Cardoso recently urged telecommunications companies to reduce their reliance on imports by localising the production of key input components, emphasising its role in enhancing local capacity, creating jobs, and conserving foreign exchange.

Airtel Africa’s CEO, Sunil Taldar, commended the CBN’s reforms and expressed support for local production.

Analysts, including Charles Abuede, Research Head at Cowry Asset Management Limited, noted the renewed interest of Foreign Portfolio Investors, driven by improved market confidence and a more efficient FX framework.

The CBN’s reforms under Cardoso’s leadership have yielded significant results, with the average daily turnover in the Nigerian Autonomous Foreign Exchange Market surging by 226 per cent in the first half of last year compared to the same period in 2023.

During this time, foreign portfolio inflows rose by over 72 per cent, and foreign exchange reserves increased from $32 billion in May 2023 to over $40 billion, marking the highest reserve level in nearly three years.

To further encourage diaspora remittances and strengthen naira stability, the CBN recently launched two new financial products: the Non-Resident Nigerian Ordinary Account and Non-Resident Nigerian Investment Account.

Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria, emphasized that diaspora remittances serve as a vital source of foreign exchange for Nigeria, complementing foreign direct investment and portfolio inflows.