Market News
Reserves at $41bn: The short, medium, and long-term implications - BUSINESSDAY
Nigeria’s foreign exchange landscape received a welcome boost on August 19, 2025, as the nation’s external reserves surged to a four-year high of $41 billion, according to new data released by the Central Bank of Nigeria (CBN). This development coincided with a modest appreciation of the naira at the official foreign exchange market, where it gained N0.95 to close at N1,535.78/$1 compared with N1,536.73/$1 the previous day.
This increase marks a 12.42 percent year-on-year growth from $36.47 billion recorded on the same date in 2024 and brings Nigeria’s reserves back to levels last seen on March 12, 2021. With this, the country now has over 9.5 months of import cover, which is nearly a full year’s worth for merchandise imports, based on data from the balance of payments for the 12 months ending December 2024. But beyond the headline figures lies a deeper story of reforms, recalibration, and opportunities.
In the immediate term, the jump in external reserves offers Nigeria a stronger external buffer. For a country heavily reliant on imports for both consumer goods and industrial inputs, a $41 billion reserve stockpile allows the CBN to more confidently intervene in the FX market to manage volatility and ensure liquidity. This has already contributed to the relative narrowing of the gap between the official and parallel market rates, now just under 1 percent, according to last Thursday’s rates: N1,535.78/$1 at the NFEM and N1,545/$1 at the parallel market.
For investors, this signals resilience, as a robust reserve base reduces perceived country risk and boosts investor confidence, especially for those engaged in trades and fixed-income investments. Already, institutions like United Capital reported a 1.4 percent appreciation of the naira in July alone, from N1,552/$1 to N1,530/$1, driven by increased FX supply, better oil receipts, and steady inflows from diaspora remittances and foreign portfolio investors.
“Improved crude oil production and a crackdown on oil theft have revived petroleum exports, while strategic efforts to woo foreign portfolio investors and diaspora funds are finally gaining traction.”
However, the real story is the policy architecture enabling this turnaround. Key reforms by the Central Bank of Nigeria under the leadership of Governor Olayemi Cardoso have focused on restoring FX market credibility, liberalising pricing, and eliminating backlogs that previously distorted market signals. These reforms, while painful in the early stages, especially with the naira hitting lows above N1,600/$1 earlier this year, are now yielding results.
Remarkably, the rise in reserves is not merely a result of external borrowings but a reflection of real inflows. Improved crude oil production and a crackdown on oil theft have revived petroleum exports, while strategic efforts to woo foreign portfolio investors and diaspora funds are finally gaining traction. The moderation in import demand, induced by higher FX costs, has also played a role in slowing reserve drawdowns.
This rejigged policy is helping Nigeria rebalance structurally: reducing its dependence on unsustainable CBN interventions and pushing for market-led FX determination. While the naira remains undervalued by some metrics, its slow and steady recovery in recent weeks, combined with inflows-driven reserve growth, suggests the worst of the FX crisis may be behind the country, at least for now.
The sustainability of this progress depends on several interlinked factors. First, Nigeria must ensure that crude oil production remains stable and preferably improves to take advantage of favourable global prices. With Brent crude hovering near $85 per barrel in August 2025, the opportunity to rebuild buffers is real, but only if sabotage and underinvestment in the oil sector are addressed comprehensively.
Second, ongoing FX reforms must be institutionalised. If Nigeria slips back into the era of artificial exchange rates and administrative controls, the gains will quickly evaporate. The current reserve level allows the CBN to manage shocks, not manipulate outcomes.
Third, Nigeria must diversify its sources of FX earnings. While diaspora remittances and foreign investments help, long-term resilience depends on expanding non-oil exports and building a technology-driven services sector capable of competing globally. Efforts to deepen the local manufacturing base and improve infrastructure, particularly in energy and transport, are essential to reduce FX demand for imports.
Finally, fiscal discipline is key, as the temptation to ramp up external borrowings, now that reserves are rising and investors are more optimistic, must be checked. Borrowings should be targeted, transparent, and productivity-focused, such as financing capital projects that enhance exports or substitute imports.
The current reserve milestone is a bright spot in an otherwise challenging economic environment. With inflation still high, over 25 percent as of July 2025, and GDP growth struggling to break past 3 percent, Nigeria needs more than FX stability to deliver prosperity. Still, the $41 billion reserves and the naira’s recent appreciation reflect improved macroeconomic management, market confidence, and a gradual return of investor trust.
If Nigeria stays the course, the long-term payoff could be significant: a more stable currency, an open and liquid FX market, stronger external sector buffers, and a more resilient economy. But that future hinges on continued discipline, deepened reforms, and a focus on building a productive, export-oriented economy. The work is far from over, but for now, Nigeria can afford a cautious breath of relief.
