EBC Warns Nigeria’s $51 Billion Reserves Are Vulnerable to Hot Money and Oil Dependence

Nigeria’s foreign reserves, currently at $51 billion, remain vulnerable to volatile portfolio inflows and the country’s continued dependence on oil, according to global brokerage firm EBC Financial Group. The Group warned in a market outlook released on Thursday that the reserve build may not be sustainable because much of the increase has been driven by cyclical factors that could reverse if market conditions deteriorate.

The rebound in reserves reflects stronger investor confidence following the Central Bank of Nigeria’s foreign exchange reforms, EBC said. But its sustainability will depend on the country’s ability to attract more long-term investment, maintain oil earnings, and preserve confidence in the naira.

Reserves Rise, But Mostly on Short-Term Money

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.”

According to National Bureau of Statistics data cited by EBC, Nigeria attracted $10.37 billion in foreign investment during the first quarter of 2026, an 83.83% year-on-year increase. 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. Foreign direct investment 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 CBN 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.

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 This Means for the Naira and Nigerian Businesses

The reliance on hot money leaves the naira exposed to sudden reversals if global interest rates shift or oil prices fall further. For Nigerian businesses, sustained reserve growth tied to stable long-term investment rather than short-term portfolio flows would provide more predictable access to foreign exchange and support economic planning.