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•NFEM inflows shrink to $4.12bn in February …Experts urge urgent stability measures
By Chinwendu Obienyi
Nigeria’s external reserves have recorded an eighth consecutive weekly decline, weighed down by the prolonged slump in global oil prices.
The sustained depletion has further strained the country’s foreign exchange liquidity, with total inflows into the Nigerian Foreign Exchange Market (NFEM) shrinking to $4.12 billion in February.
The development has heightened concerns among economic stakeholders, prompting fresh calls for decisive policy measures to stabilise the naira, bolster reserves and restore investor confidence in Nigeria’s financial system.
Latest data from the Central Bank of Nigeria (CBN) revealed that FX reserves dropped by $1.31 billion, or 3.3 per cent, in February 2025, closing the month at $38.42 billion compared to $39.72 billion at the end of January.
This marks the second consecutive month of significant reduction in 2025, following a $1.16 billion drop in January.
Furthermore, FX reserves declined by $115.18 million week-on-week (w/w) to $38.39 billion. This means reserves have now fallen for 41 consecutive days, reaching their lowest level in about five months.
This decline followed a drop in oil prices, with Brent crude tumbling 3.8 per cent—its steepest weekly fall since mid-November. Meanwhile, WTI was down 3.6 per cent, marking its worst performance since late January.
The downturn came as US crude inventories swelled and OPEC+ announced plans to hike output quotas, sending Brent prices to their lowest levels since December 2021. Back home, Nigeria’s Bonny Light crude wasn’t spared from the market turbulence, shedding 3.02 per cent w/w to settle at $75.88 per barrel.
The dip was driven by a mix of weak global demand and shifting market dynamics, resulting in the slump in Nigeria’s external reserves.
This drop poses significant risks to Nigeria’s revenue projections and economic stability, as the government based its 2025 budget on an oil benchmark of $75 per barrel.
Adding to concerns, a weekly report from Cordros Research revealed that total inflows into the Nigerian Foreign Exchange Market (NFEM) declined to $4.12 billion in February, a 12.9 per cent month-on-month (m/m) decrease from $4.74 billion in January.
The report attributed the performance to a broad-based decline across foreign (50.1 per cent of total transaction value) and local (49.9 per cent of total transaction value) inflows.
“Parsing through the breakdown, inflows from foreign sources declined by 10.5 per cent m/m to $2.07 billion (January: $2.31 billion), reflecting declines in inflows from FPI (-12.5 per cent m/m) and FDI (-12.3 per cent m/m), amid a surge in other corporate inflows (+172.6 per cent m/m).
At the same time, inflows from local sources dipped by 15.1 per cent m/m to $2.06 billion (January: $2.43 billion) due to declines in inflows from individuals (-62.5 per cent m/m), CBN (-36.3 per cent m/m), and exporters/importers (-22.5 per cent m/m), amid an increase in inflows from non-bank corporates (+3.5 per cent m/m),” the report said.
Reacting to the development, economic experts have expressed growing concerns over the continuous decline in FX reserves, particularly given Nigeria’s import-dependent economy and foreign debt obligations.
Citing ongoing trade tensions and uncertainty in OPEC+ production policies, the Chief Economist and Partner at SPM Professionals, Paul Alaje, stressed that the ongoing tariff conflicts could contribute to significant inflation in the coming quarters.
He added that any prolonged drop below this threshold could worsen the fiscal deficit, increase borrowing needs, and exert pressure on government finances. Speaking on the decline in inflows into NFEM and the weekly performance of the naira, Alaje commended the recent decision of the Central Bank of Nigeria to intervene in the FX market.
He said, “The apex bank clearly recognizes the significant challenges that exist. However, it is crucial that we remain steadfast in our approach, as we are seeing a decline in rates once again. Achieving stability should remain our primary objective.”
For their part, analysts at Cordros Research said that despite recent market pressures, the outlook for NFEM remains cautiously optimistic.
“We expect FX inflows to remain robust in the short term compared to previous months, driven by improved market confidence. However, the moderation in yields following the rebased inflation print is likely to dampen carry trade opportunities, restraining FX inflows from FPIs and ultimately affecting overall FX liquidity.
Despite the recent rise in market demand pressure, we expect naira volatility to remain contained, supported by strong market liquidity from improved autonomous inflows. Additionally, we anticipate that the CBN will continue its interventions during periods of heightened volatility, helping to prevent a sharp depreciation of the naira,” they said.
