Market News

Hope Moses-Ashike 

Nigeria’s external reserve position remains a key indicator of the country’s ability to defend the naira and meet its external obligations. In its 2026 macroeconomic outlook, CBN projected Nigeria’s external reserves would rise to $51.04 billion in 2026, supported by stronger oil earnings, FX market reforms, and improved external inflows.

Analysts estimate that at the current $46 billion, Nigeria’s external reserves presently cover over 12 months of imports and could hit $51.04 billion by year-end. Factors driving the reserves build-up include improved FX inflows, higher oil receipts, increased remittances through official channels, and renewed interest from foreign portfolio investors following FX market reforms instituted by the Olayemi Cardoso-led Central Bank of Nigeria (CBN). Overall, a strong reserves position is expected to continue bolstering the exchange rate and promoting financial sector stability.

Nigeria’s external reserves have crossed the $46 billion mark for the first time in about eight years, highlighting the steady growth recorded since 2025. According to the latest data from the CBN, the country’s external reserve increased by about $510 million in 22 days, moving from $45.50 billion on December 31, 2025, to $46.01 billion on January 22, 2026. Industry data shows that Nigeria’s external reserves were last at this level on August 24, 2018, when they stood at $45.09 billion.

The reserve build-up signals stronger buffers for import cover and currency stability, reflecting steady inflows and improved foreign exchange management since the forex reforms began, as the country prepares for a general election. The CBN data also indicates a notable turnaround from the volatility experienced during the early phase of the new FX regime, with reserves closing at about $45.5 billion in 2025, having opened the year at roughly $40.8 billion.

Analysts expressed optimism that the steady growth of Nigeria’s external reserves over several months will be sustained this year. They said the various government reforms have brought stability and confidence, which has caused improvement in the country’s reserves. However, they cautioned that sustaining the momentum throughout the election year will depend on fiscal discipline.

Things Looking Up for Naira

The naira currently exchanges at N1,418.95 to the dollar in the official market, while trading at N1,485 in the parallel market. Aminu Gwadabe, President, Association of Bureaux De Change Operators of Nigeria (ABCON), said the naira has remained stable across markets for several months, ending years of volatility.

Read also: Naira ends week flat as external reserves hit $46bn

Bismarck Rewane, managing director, Financial Derivatives Company (FDC), estimated the fair value of naira at about N1,257 to the US dollar. Rewane noted that the local currency is undervalued by approximately 11 percent when assessed using the purchasing power parity (PPP) model. He made the submission during his keynote address at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria (ACTN), where he anchored the session and offered a detailed analysis of structural and cyclical factors influencing Nigeria’s exchange rate movements.

According to Rewane, currencies typically converge towards their PPP-implied values over a five-year horizon. The appropriate exchange rate based on current PPP estimates stands at N1,256.79 to the dollar, reinforcing the view that the naira remains below its fair valuation level.

What Stakeholders Are Saying

Muda Yusuf, founder/chief executive officer, Centre for the Promotion of Public Enterprise (CPPE), hinted at a positive outlook for Nigeria’s external reserves, stating he does not see anything derailing the forex and fiscal reforms that have brought about stability.

He said, “Well, the outlook for me is positive because I don’t see anything derailing these reforms (forex reform, fuel subsidy, etc.). It is these reforms that have brought stability. And it’s this stability that has inspired confidence. It is the confidence that has allowed the improvement in the reserves. The reserves are not so much coming from oil, though. My sense is that the reserves are coming largely from outside oil, FDI, portfolio, diaspora flows, non-oil exports. Quite a lot is happening outside traditional sources of forex. For as long as that is happening, even with the so-called election year, I don’t see anything changing that in any drastic way.”

Other analysts said the growth in external reserves can only be sustained in 2026 if CBN avoids excessive FX intervention, fiscal authorities restrain spending pressures, and FX reforms are not reversed. They added, “Historically, election cycles in Nigeria tend to introduce policy uncertainty, FX demand pressure, and capital flow reversals. So, while reserves can be sustained in the short term, maintaining this momentum throughout an election year will depend on discipline.”

Future of Reserves

The apex bank said the $51 billion reserves outlook reflects higher oil revenues, increased bond issuance, sustained diaspora remittances, FX reforms, and expanded domestic refining capacity.

The CBN stated, “The external reserves is projected at US$51.04 billion in 2026, compared with US$45.01 billion in 2025. The external reserves is expected to be boosted by reduced pressure in the FX market based on the anticipated rise in oil earnings, sovereign bond issuance, and diaspora remittance inflow.”

The apex bank linked the positive external reserve outlook to expanded domestic refining, notably the Dangote Refinery’s planned capacity increase to 700,000 bpd in 2025 and a longer-term target of 1.4 million bpd. Increased local refining would reduce Nigeria’s dependence on imported petroleum products, lowering foreign exchange demand and easing pressure on reserves.

Reforms Payoff Continues

The FX reforms instituted by the Olayemi Cardoso-led CBN, along with government policies to boost local production, reduce forex demand pressure, and lower domestic prices, have been instrumental in sustaining macroeconomic stability. The apex bank is expected to continue these reforms while fiscal authorities enhance FX earnings from gas, oil, and non-oil exports.

CBN Governor explained that the rise in foreign reserves marked a significant rebound in Nigeria’s currency buffers amid ongoing efforts to stabilise the exchange rate and rebuild investor confidence. The spike occurred despite relatively strong CBN market intervention, external debt servicing, and weak oil receipts. Analysts expect robust FX liquidity from both foreign and local sources, driven by strong market confidence, to continue supporting naira stability in the near term.

Headline inflation is also expected to ease further in July, supported by moderation in both food and core components. Analysts said, “Slowdown in food prices will be supported by improved supply from early green harvests and the relative stability of naira, which is expected to reduce pressure on imported food prices. Core inflation is projected to remain broadly stable, supported by reduced exchange rate pass-through and steady energy prices.”

Multiple FX Sources Activated

Under Cardoso, CBN is cultivating multiple FX sources to increase dollar inflows and improve access for manufacturers and retail users. Initiatives include encouraging diaspora remittances through new products, granting licences to new International Money Transfer Operators (IMTOs), implementing a willing buyer–willing seller FX model, and ensuring timely naira liquidity access for IMTOs. These measures have led to substantial accretion to gross FX reserves and supported naira stability.

Diaspora remittances, estimated at $23 billion annually, remain a reliable forex source. CBN efforts aim to double formal remittance receipts within a year, bolstering public confidence, strengthening the banking system, and promoting price stability essential for sustained growth.

Charlie Bird, director of Trading, Verto, said dollar liquidity dynamics are now more balanced, with foreign investors and airlines able to repatriate funds. Speaking during the Cordros Asset Management seminar titled “The Naira Playbook”, he said Nigeria has become a darling of foreign investors due to improved FX liquidity from positive CBN reforms.

As Naira Stabilises, Import Costs to Dip

Analysts project import costs will drop as naira strengthens. Import costs include various taxes and charges, primarily import duties, VAT, and other levies, calculated on CIF (Cost, Insurance, and Freight) value. Changes in the exchange rate significantly impact these costs.

Nigeria’s total imports in 2024 were valued at $40.97 billion, mainly from China, Belgium, and India. New figures from the National Bureau of Statistics show Nigerian imported food and beverages worth N1.67 trillion ($1 billion) in Q1 2025, a five percent increase from N1.59 trillion in the same period of 2024.

Cordros Securities analysts said naira appreciation cushioned the impact of rising imported fuel prices triggered by Middle East tensions. They added, “We expect FX liquidity to remain robust, supported by reduced global pressures and stronger market confidence, which continues to attract inflows from foreign portfolio investors. A stronger net FX reserve position enhances CBN’s capacity to intervene when necessary. Barring shocks, naira will remain stable in the near term.”

While Nigeria is making strides toward fuel self-sufficiency, imports still contribute to the import bill, although reduced importation in Q1 indicates declining dependence.