Rising Loan Repayments, Capital Reversals Drive CBN FX Outflows By $1.2bn

…Surge Reflects Growing External Debt Service Burden

Capital outflows from Nigeria rose significantly in January 2025, reaching $1.20bn, up from $1.06bn recorded in December 2024.

The increase represents a sustained pressure on the country’s external sector, driven primarily by surging external loan repayments and a notable uptick in capital reversals.

According to the January data, the sharp rise in outflows was largely due to a 27.45 per cent increase in loan repayments, which amounted to $0.65bn during the month.

This surge reflects a growing external debt service burden, as the country continues to meet its obligations amidst tighter global financial conditions, elevated interest rates, and a strong US dollar.

Analysts suggest that these repayments are likely linked to maturing debt instruments and syndicated loans, which were contracted in previous years when global liquidity was more accommodative.

Funds previously invested in the country that are now being pulled out by investors also contributed significantly to the overall outflow.

These reversals rose by 3.85 per cent in January to $0.54bn. The increase in capital reversals, according to findings, may be attributed to heightened investor caution, stemming from macroeconomic uncertainties, policy inconsistencies, and concerns over currency stability.

Some foreign portfolio investors may have opted to exit local markets due to perceived risks or in search of more attractive yields in other emerging or developed markets.

Interestingly, the repatriation of dividends — the transfer of profits by foreign-owned companies to their parent firms — declined sharply during the period.

According to the CBN data, the value of dividend repatriation fell by 66.67 per cent to just $0.01bn. This sharp drop could be indicative of companies deferring profit remittances amid volatility in foreign exchange markets or regulatory measures aimed at easing pressure on external reserves.

In terms of proportional contribution to the total outflow, loan repayments constituted the largest share at 54.33 per cent.

Capital reversals followed closely, accounting for 44.81 per cent, while repatriated dividends made up a mere 0.85 per cent.

Other forms of capital outflows, including payments for technical services, royalties, and management fees, accounted for the remaining portion.

The rise in capital outflows, particularly in the form of debt repayments, underscores the vulnerability of the country’s balance of payments to external shocks and rising debt obligations.

With international reserves under strain and external financing conditions still tight, policymakers face a delicate task of balancing debt service commitments with the need to support domestic economic growth and currency stability.

Rising Loan Repayments, Capital Reversals Drive CBN FX Outflows By $1.2bn is first published on The Whistler Newspaper