Nigeria’s foreign trade transactions facilitated through Letters of Credit (LCs) increased by 3.68% year-on-year, reaching $267.96 million in the first four months of 2025, up from $258.46 million in the same period of 2024, according to the Central Bank of Nigeria (CBN). The data, published on the CBN’s website on May 25, 2025, reflects a modest recovery in import activities, signaling improved confidence in the nation’s external sector despite ongoing economic challenges.
A Letter of Credit is a bank-issued guarantee ensuring payment to exporters upon confirmation of shipment and proper documentation, widely used for importing tangible goods. The rise in LC payments suggests easing foreign exchange constraints, which have historically forced Nigerian importers to rely on prepayments due to limited forex availability and weak reserves.
The CBN data revealed monthly fluctuations in LC transactions. January 2025 saw $64.55 million in LC payments, up from $58.33 million in January 2024. February recorded the highest volume at $95.59 million, though this was a 6.84% decline from $102.6 million in February 2024. March saw a dip to $43.53 million, down from $54.03 million the previous year, while April rebounded to $64.29 million, a 47.7% increase from March 2025 but a 1.6% drop from April 2024. These swings highlight the volatility in Nigeria’s trade environment.
Analysts attribute the overall increase in LC usage to growing external reserves, which reached $38.90 billion by mid-May 2025, boosting confidence among importers and foreign partners. However, challenges persist, as Nigeria’s foreign exchange reserves fell by approximately $3 billion during the same period, driven by significant debt servicing obligations. The CBN reported that $2.01 billion was spent on external debt repayments between January and April 2025, a 50% increase from $1.33 billion in 2024, accounting for 77.1% of total foreign outflows.
This heavy debt burden, including a $3.4 billion IMF loan repayment completed in April 2025, continues to strain Nigeria’s fiscal space, limiting funds for trade and other critical transactions. Economic experts caution that while the rise in LC payments is encouraging, sustained recovery in trade finance depends on addressing these pressures and stabilizing the forex market.
The CBN’s efforts to enhance transparency, including the launch of the Nigerian Foreign Exchange Code, aim to foster accountability and compliance in the forex market, potentially supporting further trade growth. However, with debt servicing consuming a significant portion of foreign outflows, Nigeria’s ability to sustain this upward trend in LC payments remains under scrutiny.
