Nigeria’s external reserves have become a major talking point as it continues to rise under President Bola Tinubu’s administration, from about $33 billion in May 2023 to $53.31 billion as of August 25, 2026.
The increase has triggered a fresh debate over whether part of the reserves should be used to finance urgent national needs.
On August 28, the minority caucus of the house of representatives called on Tinubu to withdraw $5 billion from the country’s external reserves to tackle worsening insecurity in northern Nigeria.
The lawmakers said the scale and frequency of attacks across the region had become intolerable.
“If funding is an issue, the government should draw $5 billion from the nation’s external reserves for an extraordinary national security intervention,” the caucus said.
But what exactly are external reserves, who controls them, and what do they mean for Nigerians?
More importantly, if Nigeria has more than $53 billion in reserves, can the government simply take part of the money and spend it on security, infrastructure or other urgent needs?
WHAT ARE EXTERNAL RESERVES?
External reserves are foreign assets held and managed by a country’s central bank to meet international payment obligations and support the stability of its currency.
In Nigeria, the reserves are held mainly by the Central Bank of Nigeria (CBN) and are largely denominated in foreign currencies, particularly US dollars.
They can also include other foreign assets such as securities, gold and special drawing rights (SDRs).
In simple terms, external reserves are Nigeria’s foreign-currency financial buffer.
It is similar to having savings set aside for emergencies, except that a country’s reserves have specific monetary and external-sector purposes and are not ordinary government revenue.
Nigeria earns foreign exchange (FX) through several channels, including crude oil and gas exports, foreign direct investments (FDI) and foreign portfolio investments (FPI), as well as remittances and exports.
WHY ARE EXTERNAL RESERVES IMPORTANT, AND HOW DO NIGERIANS, BUSINESSES BENEFIT FROM THEM?
One of the most important functions of external reserves is to provide a buffer that can help support the naira and protect the economy from external shocks.
Reserves also give a country greater capacity to meet its international payment obligations, including external debt payments and import-related transactions.
The CBN also use FX from its reserves for its monetary and foreign exchange functions, including supplying dollars to authorised dealers when necessary.
Muda Yusuf, director-general (DG) of the Centre for the Promotion of Private Enterprise (CPPE), said the fundamental purpose of reserves is to support currency stability.
He said exchange rate stability is important not only to investors but also to ordinary Nigerians because it helps create a more stable environment for businesses and investment.
“The fundamental essence of external reserve is to support your currency,” Yusuf said.
He said a stable currency is an important indicator of macroeconomic stability and can influence investor confidence, investment and economic growth.
“For the ordinary people, if there is no investment, they will not find jobs,” the DG said.
Yusuf explained that a more stable currency can encourage investment and ultimately support employment.
According to Yusuf, Nigerians directly and indirectly benefit from rising reserves through a stable currency, excess FX liquidity for imports, and elimination of pricing uncertainty for businesses.
He said a stronger reserve position can give the CBN greater capacity to respond to pressure in the foreign exchange market, adding that “if this helps to reduce excessive volatility in the naira, it can affect the prices Nigerians pay for imported goods and services”.
According to the DG, the relative stability of the naira in recent months has helped some imported products become cheaper.
“Over the last 12 months, there has not been any major depreciation in the currency. If anything, it has appreciated,” Yusuf said.
He added that the movement had a positive effect on some imported items, as businesses that import machinery, raw materials, medicines and other goods need foreign exchange.
“A more stable exchange rate can therefore reduce the uncertainty and costs associated with importing those products, although it does not automatically translate into lower prices,” he said.
“Other factors, including inflation, oil prices, capital flows, monetary policy and demand for foreign exchange, also influence prices.”
Yusuf said a healthy reserve position can also improve confidence among international businesses dealing with Nigeria.
“If you want to do business with a country… one of the first things you worry about is that, will they be able to pay you in the international currency?” Yusuf said.
He recalled the period when foreign airlines complained that their revenues earned in Nigeria were trapped because of difficulties accessing forex.
Yusuf said stronger reserves will reassure foreign investors that they can move funds in and out of the country when necessary.
WHAT HAPPENS WHEN RESERVES FALL?
A decline in external reserves means the country’s stock of foreign assets is depleting.
This occurs when foreign exchange outflows exceed inflows, the country records lower oil earnings, demand for foreign exchange surges, external debt payments rise, and the CBN constantly intervenes in the forex market.
A prolonged decline can raise concerns about a country’s ability to meet external obligations like loan repayment — leading to rating companies like Moody’s and Fitch Ratings downgrading the country’s credit status in capital markets, making it difficult for the government to access capital.
Declining foreign reserves also affect the ability of a country to provide cover for imports, forcing manufacturers to slow down production.
Also, the country will be unable to defend its local currency — resulting in the depreciation of its legal tender, which triggers capital flight and pushes citizens into converting their local currency to foreign currencies to prevent the value of their savings from depreciating.
Depleting FX reserves also lead to foreign investments getting trapped and discouraging investors from investing in the country.
Yusuf said reserves are particularly important when an external shock hits the economy because they provide a buffer against excessive currency volatility.
“A country with a robust reserve position has more room to respond to sudden changes in global financial conditions, commodity prices or investor sentiment,” he said.
IF NIGERIA HAS $53BN, WHY CAN’T GOVERNMENT SPEND IT?
This is perhaps the biggest misconception about external reserves.
External reserves are not the same as government revenue.
The reserves are managed by the CBN and are held primarily for monetary and external-sector purposes.
They are not simply money sitting in a government account that can be transferred whenever the government needs additional funds to tackle insecurity.
This distinction is particularly important in light of the house minority caucus’ call for $5 billion to be withdrawn for security spending.
Using reserve assets for government expenditure raises questions about the CBN’s mandate, the legal framework governing reserve management, how the assets would be converted into naira, and the effect that reducing the reserve buffer could have on the foreign-exchange market.
Yusuf said another consideration is the composition of Nigeria’s reserves.
He explained that a significant portion of foreign exchange entering the country is linked to portfolio investments, including investments in treasury bills and government bonds.
Such funds can be withdrawn relatively quickly when investors decide to leave the market.
“If you go and use the money, and the portfolio investors want to take out their money, how are you going to manage it?” Yusuf said.
He also warned that using reserves for long-term projects such as roads and bridges could leave the country exposed if foreign investors suddenly demand their funds or if Nigeria faces another external shock.
SO, CAN RESERVES EVER BE USED?
While reserves cannot be withdrawn like revenue for government expenditures, they can still be deployed, according to the CPPE DG, who explained reserves can be invested in liquid foreign assets to generate returns while remaining accessible when needed.
“Because the reserve should not just be sitting there. It’s like you have money in your savings account and you also have money in your current account,” Yusuf said.
“If the money is getting more, you move some to savings. You know? So that is what people do. That is why some countries have what you call, sovereign wealth fund.
“Countries with very large foreign-currency buffers may also establish sovereign wealth funds to invest part of their excess assets in ways that preserve liquidity and generate returns.”
However, Yusuf said being able to invest the external reserves does not mean a country can use the reserves for government expenditures.
