EBC: Nigeria’s $51 billion reserves face risks from hot money, oil dependence

Global brokerage firm, EBC Financial Group has said that Nigeria’s foreign reserves currently at $51 billion remain vulnerable to volatile portfolio inflows and the country’s continued dependence, warning that it may not be sustainable.

The Group stated this in a market outlook released on Thursday, noting that much of the increase recorded recently has been driven by cyclical factors that could reverse if market conditions deteriorate.

It noted that the rebound in reserves reflects stronger investor confidence following the Central Bank of Nigeria’s (CBN) foreign exchange reforms, but warned that its sustainability will depend on the country’s ability to attract more long-term investment, maintain oil earnings and preserve confidence in the naira.

What they are saying

According to the firm, Nigeria’s reserves have risen from about $32 billion in April 2024, when the country faced severe dollar shortages, to approximately $51 billion, bringing the CBN close to its reserve target.

However, EBC said the increase has been largely supported by strong oil receipts and short-term foreign portfolio inflows rather than more stable sources of capital.

• “Nigeria’s reserve build is real but may not be durable yet, because nearly all of the new money is the kind that can leave quickly” said David Precious, Senior Market Analyst at EBC Financial Group.
• “Of the $10.37 billion that came in over the first quarter, the overwhelming majority was short-term portfolio funds rather than long-term investment, so a shift in oil prices, global interest rates or confidence in the naira might pull a large part of it straight back out,” he added.

More insights

EBC’s analysis shows that Nigeria attracted $10.37 billion in foreign investment during the first quarter of 2026, representing an 83.83% year-on-year increase, according to National Bureau of Statistics data.

• Of that amount, $9.86 billion, or 95.09% came from portfolio investments, largely into Treasury bills and other naira-denominated debt instruments that investors can easily exit.
• In contrast, foreign direct investment (FDI) stood at just $135.08 million, representing 1.3% of total inflows.

The brokerage noted that while portfolio investments provide immediate support for reserves by increasing dollar liquidity in the foreign exchange market, they are highly sensitive to changes in investor sentiment, global interest rates and exchange rate expectations.

Oil support becoming less certain

The report also highlighted growing uncertainty around oil’s contribution to reserve growth.

According to EBC, geopolitical tensions earlier this year, particularly concerns surrounding the Strait of Hormuz, temporarily lifted crude oil prices and boosted Nigeria’s export earnings.

• The country recorded $8.11 billion in crude oil export receipts during the first quarter, according to the CBN’s balance of payments data.
• However, Brent crude has since retreated to around $72 per barrel, erasing much of the earlier price gains.
• With Nigeria’s oil production constrained by OPEC quotas, pipeline vandalism and ageing infrastructure, EBC said the country cannot easily compensate for lower prices through higher output.

As a result, the brokerage expects reserves to become increasingly dependent on non-oil export earnings and sustained foreign investor confidence.

Exchange rate reforms remain critical

The narrowing gap between the official and parallel market exchange rates is another key factor supporting confidence, according to the report.

The difference between both markets has narrowed to about N20 to N30 per dollar, with the official exchange rate trading around N1,380/$ compared to approximately N1,400/$ in the parallel market.

EBC said maintaining a credible unified exchange rate will be essential in reassuring foreign investors that they can freely repatriate their funds.

The report also referenced the International Monetary Fund’s 2026 Article IV consultation, which urged Nigeria to reduce its reliance on volatile portfolio inflows and continue reforms aimed at eliminating multiple exchange rate practices.

It added that the CBN’s new Foreign Exchange Manual, which took effect on June 1, is expected to improve market transparency, although investor confidence will ultimately depend on consistent access to foreign exchange at market rates.

What you should know

On June 18, Nairametrics reported that Nigeria’s external reserves climbed to $51.04 billion, marking the highest level in about 17 years as stronger foreign exchange inflows and improved market conditions continued to support the country’s reserve position.

• The reserves started June at $49.80 billion and crossed the $50 billion mark by June 5, reaching $50.12 billion.
• By June 15, reserves had increased further to $50.81 billion before climbing to $51.04 billion three days later.

The growth is in line with the CBN’s projection of a stronger reserve position for 2026. The apex bank in its economic projections, forecast that Nigeria’s external reserves would rise to about $51.04 billion during the year.