Nigeria’s $51bn reserves under threat from short-term funds, oil ...

Nigeria’s external reserves have climbed to $51.04 billion, the highest level in nearly two decades, but global brokerage firm EBC Financial Group has warned that the build-up may prove unsustainable as it is largely driven by volatile portfolio inflows and uncertain oil earnings.

The reserves, which stood at about $32 billion in April 2024 when the country faced severe dollar shortages, have surged by 59 percent following the Central Bank of Nigeria’s (CBN) foreign exchange reforms and stronger investor confidence. However, EBC cautioned that the bulk of the inflows are short-term “hot money” that could exit as quickly as they arrived.

Data from the National Bureau of Statistics show Nigeria attracted $10.37 billion in foreign investment in the first quarter of 2026, an 83.83 per cent year-on-year increase. Of this, $9.86 billion, representing 95.09 per cent, came from portfolio investments in Treasury bills and naira-denominated debt instruments. In contrast, foreign direct investment (FDI) was just $135.08 million, accounting for a mere 1.3 per cent of total inflows.

“Nearly all of the new money is the kind that can leave quickly,” said David Precious, Senior Market Analyst at EBC. “A shift in oil prices, global interest rates or confidence in the naira could pull a large part of it straight back out.”

Oil receipts have also played a critical role in the reserve build-up, with Nigeria earning $8.11 billion from crude exports in Q1 2026. But Brent crude has since retreated to $72 per barrel, erasing earlier gains. With production constrained by OPEC quotas, pipeline vandalism and ageing infrastructure, Nigeria cannot easily ramp up output to offset lower prices, leaving reserves increasingly dependent on non-oil exports and investor sentiment.

Confidence in the naira has been bolstered by the narrowing gap between official and parallel market exchange rates, now trading at N1,380/$ and N1,400/$ respectively — a spread of just N20–N30. EBC stressed that maintaining a credible unified exchange rate is essential to reassure investors of free fund repatriation.

The International Monetary Fund, in its 2026 Article IV consultation, similarly urged Nigeria to reduce reliance on volatile portfolio inflows and deepen reforms to eliminate multiple exchange rate practices. The CBN’s new Foreign Exchange Manual, effective June 1, is expected to improve transparency, though analysts say confidence will ultimately depend on consistent access to foreign exchange at market rates.

While reserves crossed the $50 billion mark on June 5 and peaked at $51.04 billion by June 18, EBC’s warning underscores the fragility beneath the headline figure. Without stronger FDI, diversified exports and sustained reforms, Nigeria’s record reserves may not provide the lasting cushion policymakers hope for.