CBN bolsters moves to stabilise naira

Nigeria’s external reserves have increased by almost 20 per cent over the last 11 months, raising hope for a stronger naira, writes FELIX OLOYEDE

When President Bola Tinubu assumed office on May 29, 2023, Nigeria’s external reserves were at $35.09bn. However, by January 9, 2024, this amount had dropped by 5.87 per cent to $33.04bn, marking a three-year low. The last time the reserves were this low was on July 9, 2021, when they depleted to $33.1bn.

The decline in forex reserves was attributed to a significant reduction in the country’s oil production, which accounts for over 90 per cent of its foreign exchange earnings. In August 2022, Nigeria’s crude oil production fell to 900,000 barrels per day due to the protracted militant crisis in the Niger Delta, resulting in the closure of several oil fields both onshore and offshore.

This situation led to a severe shortage of dollars within the country, causing volatility in the forex market as the Central Bank of Nigeria struggled to stabilise the local currency. As a result, many unmet foreign exchange obligations arose for the central bank, and numerous importers had to turn to the black market to fund their letters of credit.

However, the country appears to be making a turnaround, as the government has made notable strides in resolving the Niger Delta crisis and increasing crude oil production. According to the Organisation for Petroleum Exporting Countries, Nigeria’s oil output, including condensate, rose by 13.3 per cent year-on-year to 1.7 million barrels per day in November 2024, up from 1.5 million bpd in the same period of 2023.

The government has set a production target of 2.06 million bpd for 2025 and aims to further increase output to 2.7 million bpd by 2027, including condensate.

The CBN has initiated important reforms to stabilise the country’s forex market. The external reserves have increased by 19.40 per cent in the last 11 months, rising to $38.33bn on March 21 from $32.11bn on April 19, 2024.

This has given the apex bank the war chest to intervene in the forex market, bolstering supply to retail end users, reducing distortions in the market and maintaining effective foreign reserves management and accretions.

This has provided the central bank with the war chest to intervene in the forex market, enhancing supply to retail users, reducing market distortions, and ensuring effective management of foreign reserves.

The infusion of liquidity into the market and improved compliance with FX regulations have helped curb the sharp depreciation of the naira in both official and parallel markets while boosting foreign investors’ confidence in the domestic economy.

The apex bank recently injected $360m into the market through authorised dealers, helping to cushion against a sharper devaluation amid renewed demand pressures.

The local currency, which depreciated to an all-time low of N1681 per dollar at the official Investor and Exporter window on November 6, 2024, according to data from the FMDQ Exchange, strengthened to 1,531.19/$ as of March 24.

At the parallel forex market, the naira averaged at 1,560/$ on Tuesday, having depreciated to almost 2,000/$ last year after the CBN unified the country’s forex rates in June.

According to the Governor of the CBN, Olayemi Cardoso, as of January, the Federal Government had paid off its outstanding $7bn foreign exchange obligations after forensic auditors successfully verified the debts.

However, analysts believe the exchange rate is still high, stifling local businesses and making them uncompetitive in the international market.

An economist with Ajayi Crowther University, Oyo, Dr Segun Ogundare, advised that the CBN strive to reduce the gap between the naira and the dollar to pre-May 2023.

According to the don, the significant depreciation of the local currency has made life difficult for many Nigerians.

Though the country’s headline inflation rate has dropped to 23.18 per cent in February 2025 from 24.48 per cent recorded in January, after the National Bureau of Statistics rebased the consumer price index in January. Nigeria’s inflation rose for the fourth straight month to peak at 34.8 per cent in December.

The Director of the Centre for Promotion of Private Enterprise, Dr Muda Yusuf, stated that inflation has been decelerating, but it was not yet uhuru.

He cautioned, “A drastic reduction in inflation figures is not tantamount to a reduction in price level; inflation reduction simply means a reduction in the rate of increase in the general price level.”

Meanwhile, currently, the naira’s stability is supported by inflows from foreign portfolio investors, significant contributions from international oil companies, and the CBN’s intervention of $18.40m to authorised dealers.

The renewed interest from foreign portfolio investors in the FX market has been driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions.

According to Cordros Research, gross forex reserves rose by $12.06m week-on-week to $38.36b, marking a rebound after nine consecutive weeks of decline.

“Concerns about oil receipts underpinned by lower oil prices are likely to temper net FX inflows from foreign  portfolio sustaining pressure on the naira. Nonetheless, CBN’s sustained market intervention and reduced market distortions are expected to prevent a sharp depreciation of the naira,” it mentioned.

The Group CEO of Baobab Group, Philip Sigwart, said the Nigeria forex market has turned a corner, with stability allowing more companies to invest in the economy.

He disclosed that given the improved business confidence and stability in the forex market; his company would not only inject new capital into its operations but also lend more to businesses.

Speaking during a media briefing in Lagos, Sigwart, who is based at the headquarters of the Boabab Group in Paris, mentioned that the volatility in the foreign exchange market, which had previously made it challenging for businesses to plan and invest, has now been addressed. He emphasised that now is the right time to invest and expand operations in Nigeria, to establish at least 100 branches and target a balance sheet of N1tn.

The President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, attributed the ongoing stability of the naira against the dollar and other world currencies to the CBN’s policies.

According to the ABCON boss, key policies like the Foreign Exchange Code, rising investors’ confidence, and foreign direct investment-supporting policies are effectively putting forex speculators in check.

He said the FX Code implementation is comprehensively addressing various aspects of market conduct and practices.

For instance, the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe stated that the code enhances transparency and accountability in the forex market while also supporting the stability and growth of the naira.

He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

More so, the CEO of Countryside Markets Limited, Stevens Michael, said: “The whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because certain characters have really created a whole lot of problems over the years in the foreign exchange market.

“I think that is what the CBN is trying to do, and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market.”

The CBN Governor, Olayemi Cardoso, had at the launch of the FX Code emphasised integrity, fairness, transparency, and efficiency as critical pillars for driving Nigeria’s economic growth and stability.

He explained that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes.

“The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions,” he added.

Also, the apex bank also introduced the Electronic Foreign Exchange Matching System, which has proven effective in other economies in enhancing the functionality of the foreign exchange market.

The EFEMS was meant to check forex market distortions, eliminate speculative activities and instill transparency. The EFEMS, which is commonplace in developed and developing markets, offers real-time information on currency rates, trading volumes, and market activity.

The central bank has also removed the 2015 restriction that prevented 41 items from accessing forex at the official market, aiming to boost trade and investment.

As part of its efforts to boost diaspora remittances and support naira stability, the CBN recently announced the introduction of two new financial products designed to serve Nigerians living abroad.

The apex bank also established the Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account to enhance remittances, promote investments, and support financial inclusion for Nigerians living abroad.

The central bank, in a statement, said it launched those accounts, specifically designed for Nigerians in the diaspora.

It said, “The Central Bank of Nigeria is pleased to inform the general public of the introduction of the Non-Resident Nigerian Ordinary Account and Non-Resident Nigerian Investment Account targeted at Nigerians in the diaspora.”

This initiative aims to create a secure and efficient means for managing funds and investing in Nigeria’s financial markets.

Since the start of this year, eligible NRNs have been given the chance to open either of these accounts.

The Non-Resident Nigerian Ordinary Account is intended to facilitate remittances, allowing non-resident Nigerians to transfer foreign earnings into Nigeria and manage their funds in either foreign currency or naira.

It also provides an opportunity for NRNs to invest in Nigeria’s financial markets, including foreign currency-denominated bonds, fixed deposits, and local assets like equities, government securities, and mortgage products.

The CBN clarified that both accounts provide currency flexibility, allowing account holders to maintain balances in either foreign currency or naira.

Additionally, account holders can convert funds between the two currencies at current exchange rates through authorised dealers.

The following measures have been implemented: granting licences to new international money transfer operators, establishing a willing buyer-willing seller model, and ensuring timely access to naira liquidity for these operators.

Diaspora remittances play a vital role in providing foreign exchange for Nigeria, complementing both foreign direct investment and portfolio investments.

The initiatives by the CBN have facilitated continued growth in these inflows, aligning with the bank’s goal of doubling formal remittance receipts within a year.

The expected increase in remittances within the economy is attributed to the CBN’s ongoing efforts to enhance public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability—all of which are essential for sustained economic growth.

In a report titled ‘Diaspora Remittances: The Power Behind Africa’s Sustainable Growth’, Mohamed Touhami el Ouazzani, the Regional Vice President of Africa at Western Union, emphasised that while remittances can be quantified through the movement of money, their true impact is measured by the lives that are transformed.

He disclosed that in 2023 alone, $90bn flowed into Africa from its global diaspora, an amount that rivals the Gross Domestic Product of entire nations.

“Families with a breadwinner working abroad depend on these funds to provide vital support for day-to-day needs. They also build the foundation for broader financial stability.

“Beyond their immediate impact, remittances are powerful drivers of economic change. They fuel infrastructure development, spur entrepreneurship, and promote financial inclusion – all essential for long-term economic development. Ghana’s National Financial Inclusion and Development Strategy is simplifying access to remittances, while countries like Kenya, Ethiopia, and Nigeria are tapping into diaspora bonds to fund infrastructure and other national projects,” he added.

As the CBN continues to implement reforms aimed at improving the economy, experts argue that these efforts will be truly recognised when the impoverished begin to feel the positive impacts of these policies.

Nigerians are eagerly anticipating significant reductions in the prices of staple and household items as the country’s economic indicators continue to look up.