Naira Strengthens Despite Decline in External Reserves

The Nigerian naira showed renewed strength in the foreign exchange market on Monday, appreciating by 0.3% to close at N1,544.62 per US dollar. This gain reflects growing optimism fuelled by increased foreign portfolio investments, which have injected fresh confidence into the Nigerian economy. The improvement also underscores the Central Bank of Nigeria’s (CBN) ongoing efforts to stabilise the currency through strategic interventions.

External Reserves Witness a Marginal Dip

Despite the naira’s recent appreciation, Nigeria’s external reserves experienced a slight decline, falling to $37.93 billion as of June 13, 2025, down from $38.02 billion recorded on June 11, 2025. The reduction is largely attributed to increased foreign currency demand for imports and services, reduced capital inflows, and limited crude oil-related earnings.

Economic analysts are expressing concerns about the sustainability of Nigeria’s reserves, especially given the country’s heavy reliance on oil exports and the unpredictability of global oil markets. If the trend continues, it may place added pressure on the CBN’s ability to support the naira through direct interventions.

Oil Price Surge Offers Short-Term Relief

Meanwhile, global oil prices have seen a notable upswing, providing a temporary cushion for Nigeria’s fiscal position. The price of Brent crude rose by 11.67% to $74.23 per barrel, while Bonny Light crude jumped 12.86%, reaching $77.73 per barrel. These increases bring oil prices closer to the $75 per barrel benchmark set in Nigeria’s 2025 national budget.

However, experts caution that this improvement may be short-lived unless supported by broader economic reforms. Nigeria’s fiscal framework remains vulnerable due to persistent inflation, an unstable exchange rate, and the country’s limited domestic production capacity.

Key Factors Driving the Naira’s Performance

Several fundamental factors are currently shaping the value of the Nigerian naira. One of the most significant is the increased inflow of foreign portfolio investments (FPIs), which has boosted market confidence and contributed to the currency’s recent upward momentum. These investments signal a renewed interest from international investors, reflecting a more optimistic outlook on Nigeria’s economic prospects.

In addition, the Central Bank of Nigeria (CBN) has played a crucial role through its interventions in the foreign exchange market. These efforts have helped stabilize the naira in the short term. However, this stability comes at a cost primarily the depletion of the country’s foreign reserves. Analysts warn that without sustained inflows, such interventions may not be sustainable in the long run.

Another critical element is the volatility of global oil prices, which continues to influence Nigeria’s fiscal performance. While the recent surge in crude prices has provided temporary relief, the inherent unpredictability of the oil market remains a persistent risk for the economy, given its heavy reliance on oil exports.

Finally, inflation and exchange rate instability remain pressing concerns. Nigeria continues to grapple with high inflation levels, which erode consumer purchasing power and contribute to uncertainty in the economic environment. Combined with fluctuations in the exchange rate, these pressures pose significant challenges to macroeconomic stability and investor confidence.

Outlook and Policy Considerations

The naira’s current appreciation is a welcome development for Nigeria, but underlying vulnerabilities remain. The decline in external reserves raises red flags about the sustainability of foreign exchange interventions and the broader fiscal outlook.

Moving forward, the government will need to adopt a multi-pronged strategy focusing on stabilising inflation, diversifying the economy, and enhancing domestic production capacity to reduce external dependency and build a more resilient financial system.