Nigeria’s foreign trade payments through Letters of Credit (LCs) increased by 3.68 percent year-on-year to $267.96 million in the first four months of 2025, according to data released by the Central Bank of Nigeria (CBN). This growth reflects a modest rebound in import activity and a gradual easing of previous foreign exchange constraints that had limited many importers’ ability to open LCs. Letters of Credit, which guarantee exporters payment upon shipment confirmation, are a key mechanism in facilitating international trade.
Despite the overall annual increase, monthly LC transactions showed volatility during the period. January began with $64.55 million, rising sharply to $95.59 million in February before dropping significantly to $43.53 million in March and recovering to $64.29 million in April. This fluctuation highlights ongoing uncertainty in Nigeria’s trade environment, driven by a mix of improving external sector confidence and persistent foreign exchange access challenges.
Analysts attribute the improved LC usage to growing confidence in Nigeria’s external sector, supported by a steady rise in foreign reserves, which stood at $38.56 billion as of late May 2025. Historically, many Nigerian businesses had difficulty accessing foreign currency to open LCs, often resorting to prepayment for imports. The recent trends suggest these constraints are beginning to ease, though foreign currency access remains limited for many firms.
However, Nigeria’s external financial position faces significant pressure due to rising external debt obligations. The CBN data revealed a 50 percent increase in foreign exchange outflows for debt servicing, reaching $2.01 billion between January and April 2025. Debt repayments now constitute over three-quarters of the country’s total foreign currency outflows, which experts warn could jeopardize the sustainability of the recovery in trade finance and strain the nation’s fragile revenue base.
Overall, while Nigeria shows signs of improving trade finance conditions and stable foreign reserves, the mounting external debt service burden and ongoing foreign exchange challenges present risks that could affect the country’s economic stability and growth trajectory in the near term.
Source: Punch