IMF Cautions Nigeria on Dependence on Portfolio Investments
The International Monetary Fund (IMF) has issued a warning to Nigeria regarding its heavy reliance on foreign portfolio investments, often termed “hot money.” This advisory comes despite a notable surge in capital inflows, an improvement in foreign exchange liquidity, and an increase in foreign exchange reserves.
Economic Reforms Recognized by the IMF
In its latest Article IV consultations concerning Nigeria, the IMF acknowledged the government’s reforms over the past three years, which have bolstered macroeconomic stability and enhanced resilience. However, the organization urged Nigeria to reduce its dependency on portfolio flows due to their propensity to reverse rapidly in times of global uncertainties.
Capital Inflows Reported at an All-Time High
The warning coincides with the fact that foreign portfolio investments continue to dominate the capital inflows into Africa’s largest economy. According to the most recent Capital Import Report from the National Bureau of Statistics (NBS), total capital inflows surged by 61% from the previous quarter and 84% year-on-year, reaching $10.4 billion.
Analysts Highlight Record Quarterly Inflows
Quest Merchant Bank analysts noted that this figure represents the highest quarterly inflow recorded in Nigeria’s capital import data, indicating that foreign capital inflows have surpassed pre-pandemic levels. They reported a substantial increase in foreign portfolio inflows, which rose by 80% quarter-on-quarter and 90% year-on-year, totaling $9.9 billion. Notably, these inflows accounted for approximately 95% of Nigeria’s total capital imports.
Foreign Exchange Liquidity Improves Significantly
Foreign investors’ strong interest is attributed to attractive yields, stable exchange rates, and a growing confidence in ongoing economic reforms. The Central Bank of Nigeria (CBN) has also reported a significant uptick in foreign exchange flows since the start of the year. In January 2026, Nigeria recorded net foreign exchange inflows of $9.22 billion, almost triple that of December 2025, with total inflows reaching $12.23 billion.
External Buffers Strengthen Amid Rising Reserves
As a result of these inflows, Nigeria’s foreign exchange reserves increased from $40 billion at the end of 2024 to $46 billion in 2025. This growth has been supported by current account surpluses, non-resident purchases of CBN open market operation products, and Eurobond issuance. The net foreign exchange reserves also saw a significant rise, climbing from $23 billion the previous year to $35 billion by the end of 2025. Recently, Nigeria’s reserves surpassed the $50 billion mark for the first time in 17 years, enhancing the central bank’s capacity to support the foreign exchange market.
Volatility of Portfolio Flows Underlined
Despite these positive developments, the IMF emphasized that portfolio flows remain inherently unstable. Investors can withdraw their funds swiftly in response to shifts in global risk sentiment, interest rates, and economic conditions. This warning comes amid global market uncertainties characterized by escalating fuel and food prices, geopolitical tensions, and evolving monetary policy expectations in developed nations.
Policy Recommendations for Long-Term Stability
The IMF praised Nigeria’s commitment to a flexible exchange rate regime but urged policymakers to advance reforms aimed at establishing more resilient and diversified sources of foreign exchange revenue. The Fund encouraged the government to phase out any remaining exchange restrictions and to enhance the foundations for long-term capital inflows through productivity improvements, investment, and economic diversification. The IMF’s Executive Board has recommended that Nigeria’s central bank maintain a tight monetary policy until clear signs of deflation and stable inflation expectations are established.
