Market News

The recent strengthening of the naira could potentially reduce Nigeria’s external debt exposure and ease pressure on the country’s external reserves, analysts at FBNQuest Research have said. The analysts stated this in a report, which focused on the latest data on external debt service payments released by the Central Bank of Nigeria (CBN) last week.

Citing the CBN data, the report noted that the nation’s external debt service payments rose sharply by 68% month-on month (MoM) to $302.3 million in August 2025, marking a significant increase compared with the 25 per cent MoM growth recorded in the previous month and “highlighting the growing pressure on government revenue.”

It further noted that while on a year-on-year (YoY) basis, the increase in external debt service payments was modest (8%), “in terms of composition, external debt service costs accounted for the largest share of FX outflows, making up approximately 63% of international payments made during the review month.”

“This significant proportion underscores the rising share of external debt servicing in the nation’s external financial obligations. Cumulatively, external debt service payments over the 8M 2025 period stood at approximately $2.9 billion compared with $3.1 billion recorded during the same period in the previous year,” the report stated.

It, however, pointed out that while the Federal Government (FG) has primarily relied on the domestic debt market to address its funding gap, “the relative stability of the exchange rate compared with the previous year has helped ease the pressure that external debt obligations typically exert on fiscal space.”

In fact, according to the report, “Despite the MoM increase in external debt obligations, Nigeria’s external reserves have continued to rise steadily, supported by FX accretion from multiple sources.”

The report, which noted that CBN data shows that the external reserves increased by approximately $1.1 billion MoM to $42.4 billion as at the end of September 2025, and that year-to-date, the reserves have gained $1.5 billion, attributed their strong recovery to, “a combination of improved FX earnings from crude oil, increased diaspora remittances and sustained foreign capital inflows.”

It, however, said that while analysts anticipate a likely rise in external debt service payments which will be “driven by heightened borrowing activity in the third quarter of the year,” experts do not anticipate a slowdown in the growth momentum of Nigeria’s external reserves.

“Notably, the recent appreciation of the naira, driven by improved FX liquidity and reduced FX demand, could potentially limit Nigeria’s external debt exposure and ease pressure on the nation’s external reserves,” the report stated.

New Telegraph reports that Bureaux De Change (BDC) operators and industry experts believe that the naira’s impressive performance last month was driven by factors such as monetary policy tightening by the CBN, renewed investor confidence and the growing role of fintech in deepening transparency as well as reducing speculative demand for foreign exchange.

For instance, commenting on the naira’s performance in September in a chat with journalists recently, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, described it as remarkable. He said: “So, naira performed better at N1,400/$1 from its lowest level in the region of N1,500/$1, propelled by several factors.”

The factors, according to him, increased crude oil production, stronger investment in both upstream and downstream sectors, and tighter management of dollar demand. “We no longer see a vibrant ‘black market’ for dollars.

The demand for dollars has dropped significantly — both fictitious and speculative. “People are no longer buying dollars just to hold. Many Nigerians now have naira liquidity, and fintech platforms have made transactions easier without the need for domiciliary accounts,” he stated.

The ABCON President also attributed the naira’s strengthening partly to the success to the CBN’s integration of fintech systems and the Non-Resident Bank Verification Number (NRBVN) framework, which has unified identity verification across the banking sector.

“The NBVN unified registration number now connects individuals’ BVNs, names, and corporate RC numbers. There’s even a portal capturing non-residents. These innovations are boosting compliance, transparency, and tax obligations under the new financial assets tax law,” he explained.

Gwadabe also stressed: “There is really low demand for the dollar. When you talk of demand, you talk of fictitious demand. You also talk of genuine demand for the dollar. By this, I mean, people are not buying dollars to keep.”