Nigeria’s external reserves have rebounded significantly, reaching about $49 billion as of early 2026, according to recent Central Bank disclosures. On the surface, this signals renewed macroeconomic confidence, improved foreign exchange liquidity, and stronger capacity to defend the naira. But the more important question is not simply whether reserves are rising. It is what is driving the recovery and whether the gains represent durable economic strength or temporary stabilisation.
To appreciate the scale of Nigeria’s rebound, it is necessary to recall how fragile the country’s external position was just a few years ago. By early 2023, foreign exchange backlogs exceeded $7 billion, inflation had climbed to 34.6 per cent, and the premium between official and parallel exchange rates rose above 60 per cent. Net external reserves were estimated at roughly $3 billion. Today’s $49 billion reserve level represents more than a fifteenfold increase from that trough, underscoring the magnitude of the shift from vulnerability to strengthened external buffers.
The turnaround did not happen by chance. Under Governor Olayemi Cardoso, the Central Bank of Nigeria implemented a deliberate policy reset aimed at restoring monetary discipline and rebuilding foreign exchange credibility. The Monetary Policy Rate was raised by a cumulative 875 basis points, signalling tighter liquidity control and a renewed commitment to price stability. At the same time, quasi-fiscal interventions that had expanded money supply without productivity gains were discontinued, reducing distortions in the financial system.
The liberalisation of the foreign exchange market proved equally consequential. Exchange rate unification, clearance of FX backlogs, and greater transparency reversed years of administrative allocation that encouraged arbitrage and speculation. By restoring price discovery, the reforms improved FX supply dynamics and gradually rebuilt investor confidence.
Capital flows have responded. Portfolio investors who previously exited due to exchange rate uncertainty have begun returning, attracted by improved yields and clearer policy direction. Speculative demand for foreign currency has eased as exchange rate expectations stabilised. Diaspora remittances have also strengthened through improved formal channels, providing a steadier source of foreign exchange supply. Together, these inflows have accelerated reserve rebuilding and strengthened short-term currency stability.
The sharp narrowing of the parallel market premium to below two per cent underscores the credibility gains achieved. Such premiums often reflect confidence gaps in exchange rate management. Their collapse suggests that market participants increasingly trust the official FX system. The CBN’s shift from being a net seller of foreign exchange to occasionally acting as a net buyer further signals improved liquidity conditions.
Yet the durability of Nigeria’s rising reserves depends on their underlying sources. Not all reserve inflows are equally stable. Recent accumulation appears to be supported by four main drivers: improved oil receipts, renewed portfolio capital inflows, diaspora remittances, and reduced FX leakage following subsidy reforms.
Oil revenues remain Nigeria’s dominant FX source, but they are inherently cyclical. Production constraints and global price volatility mean that oil-driven reserve growth can reverse quickly if market conditions shift. Portfolio capital inflows, while helpful in rebuilding reserves, are also highly sensitive to global interest rates and investor sentiment. A tightening in global financial conditions could trigger outflows, placing renewed pressure on reserves and the exchange rate.
By contrast, diaspora remittances tend to be more stable, and expanding non-oil exports would provide a more durable foundation for reserve strength. However, Nigeria remains heavily import-dependent, particularly for refined petroleum products, industrial equipment, pharmaceuticals, and manufacturing inputs. Non-oil export performance, though gradually improving, has not yet reached levels capable of fundamentally transforming Nigeria’s foreign exchange earnings structure.
This distinction is crucial. Reserve volume reflects liquidity strength today; reserve composition determines resilience tomorrow. Without significant progress in export diversification and industrial competitiveness, reserve growth will remain exposed to commodity cycles and capital flow volatility.
Still, structural transformation cannot occur in an environment of exchange rate instability and macroeconomic disorder. Stability is a prerequisite for reform. By tightening liquidity, restoring FX transparency, and re-establishing policy credibility, the Central Bank has created a more predictable environment for investment and production.
Nigeria has experienced temporary stabilisation episodes before, often reversed by fiscal indiscipline and election-cycle liquidity surges. What distinguishes the current phase is improving coordination between monetary and fiscal policy. Deficit financing through the “Ways and Means” facility has reportedly declined sharply from 8.68 per cent of GDP in 2022 to below one per cent. Inflation has moderated significantly from its peak, and the current account has returned to surplus.
The country’s external position remains vulnerable to global shocks, and oil dependence continues to present structural risks. However, the improvement achieved within a short period represents a meaningful shift from fragility to strengthened buffers and renewed confidence.
External reserves are rising, and the reforms behind this recovery have restored credibility and reduced immediate vulnerability. The real test now lies in sustaining policy discipline and accelerating export diversification.
The current reserve trajectory suggests improving external resilience, but its durability remains conditional on global commodity trends and domestic reform continuity. Without sustained progress in export competitiveness and fiscal discipline, reserve accumulation may remain vulnerable to oil price shocks and capital flow reversals. Conversely, sustained reforms could significantly strengthen the economy’s capacity to absorb external volatility over the next decade.
Oyalowo is the executive director, finance and administration, Ogun-Oshun River Basin Development Authority.
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