According to recent Central Bank disclosures, Nigeria's external reserves have increased significantly, reaching about $49 billion by early 2026. On the surface, this signals renewed macroeconomic confidence, improving forex liquidity and a strong ability to defend the naira. But the more important question is not whether the reserves are increasing or not. This is what is driving the recovery and whether the gains represent durable economic strength or temporary stabilization.
To appreciate the scale of Nigeria's comeback, it is necessary to recall how fragile the country's external position was a few years ago. By the beginning of 2023, the foreign exchange backlog exceeded $7 billion, inflation reached 34.6 percent, and the premium between the official and parallel exchange rates soared above 60 percent. Net external reserves were estimated at approximately $3 billion. Today's $49 billion reserve level represents a more than fifteen-fold increase from that trough, underscoring the magnitude of the shift from vulnerability to stronger external buffers.
This change 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, signaling a renewed commitment to tight liquidity controls and price stability. Also, quasi-fiscal intervention, which had expanded the money supply without productivity gains, was discontinued, reducing distortions in the financial system.
Liberalization 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 had earlier exited due to exchange rate uncertainty have started returning attracted by better yields and clear policy direction. Speculative demand for foreign currencies has diminished as exchange rate expectations have stabilized. Migrant remittances through better formal channels have also strengthened, providing a stable source of foreign exchange supply. Together, these flows have accelerated reserve rebuilding and strengthened short-term currency stability.
The sharp contraction of parallel market premiums to below two percent underlines the gains in reliability. Such premiums often reflect a lack of confidence in exchange rate management. Their decline shows that market participants are losing confidence in the official FX system. The CBN's shift from being a net seller of foreign exchange to sometimes being a net buyer indicates improvement in liquidity conditions.
Yet the sustainability of Nigeria's growing reserves depends on their underlying sources. Not all reserve inflows are equally stable. The recent accumulation appears to be supported by four main drivers: improvement in oil receipts, renewed portfolio capital flows, migrant remittances, and reduction in FX leakages following subsidy reforms.
Oil revenues remain Nigeria's major foreign exchange source, but they are inherently cyclical. Production constraints and global price volatility mean that oil-driven reserve growth could reverse rapidly if market conditions change. The portfolio is highly sensitive to capital flows, rebuilding reserves as well as global interest rates and investor sentiment. A tightening in global financial conditions could trigger outflows, putting renewed pressure on reserves and exchange rates.
In contrast, remittances are more stable, and expansion of non-oil exports would provide a more durable basis for reserve power. However, Nigeria remains highly import dependent, particularly for refined petroleum products, industrial equipment, pharmaceuticals and manufacturing inputs. Non-oil export performance, although gradually improving, has not yet reached a level capable of fundamentally changing Nigeria's foreign exchange earnings structure.
This distinction is important. Reserve volume reflects the strength of liquidity today; Reserve structure determines tomorrow's flexibility. Without significant progress in export diversification and industrial competitiveness, reserve growth will remain exposed to commodity cycles and capital flow volatility.
Yet, structural change cannot occur in an environment of exchange rate instability and macroeconomic dislocation. Stability is a prerequisite for improvement. By strengthening liquidity, restoring FX transparency, and re-establishing policy credibility, the Central Bank has created a more predictable environment for investment and output.
Nigeria has previously experienced temporary stabilization events, which have often been reversed due to fiscal indiscipline and election-cycle liquidity surges. What is different about the current phase is the improvement in coordination between monetary and fiscal policy. Deficit financing through the “Ways and Means” facility is reportedly to be sharply reduced from 8.68 percent of GDP to below one percent in 2022. Inflation has declined significantly from its peak, and the current account has returned to surplus.
The country's external position remains vulnerable to global shocks, and its dependence on oil poses structural risks. However, the recovery achieved within the short term represents a meaningful shift from weakness to stronger buffers and renewed confidence.
External storage is growing, and the improvements behind it have restored reliability and reduced immediate vulnerabilities. The real test now lies in maintaining policy discipline and accelerating export diversification.
The current reserve trajectory suggests improving external resilience, but its sustainability is dependent on global commodity trends and domestic reform sustainability. Without sustained progress in export competitiveness and fiscal discipline, reserve accumulation may remain vulnerable to oil price shocks and reversals in capital flows. Conversely, sustained reforms could significantly strengthen the economy's ability to absorb external volatility over the next decade.
Ayobami Oyelowo is the Executive Director of Finance and Administration at the Ogun-Oshun River Basin Development Authority.
