Forex traders cite election spending, FX pressures as reserves drop $850 million

Forex traders cite election spending, FX pressures as reserves drop $850 million

Forex traders have attributed the recent decline in Nigeria’s external reserves to increased government spending and foreign exchange pressures linked to the election cycle.

They said one of the major factors driving this is the sustained intervention in the foreign exchange market by the Central Bank of Nigeria (CBN) as part of efforts to stabilise the naira.

They also mentioned capital flow volatility as some foreign portfolio investors continue to repatriate their funds or have become sensitive to global interest rates.

This follows data from the Central Bank of Nigeria (CBN), which shows that reserves dropped by about $850 million within three weeks.

The reserves fell from $50.03 billion on March 11, 2026, to $49.18 billion as of April 1, 2026, reversing a nine-month upward trend recorded since July 2025.

The development has raised concerns among market participants, especially as earlier projections had suggested sustained growth in reserves despite the general elections.

Analysts say the decline reflects multiple pressure points, including FX interventions, capital outflows, and external debt obligations.

Forex traders and market operators say the decline in reserves is driven by a combination of monetary interventions, capital flow volatility, and election-related fiscal pressures.

Market participants say these combined pressures have weakened the pace of reserve accretion despite favourable oil price movements.

Experts note that Nigeria’s structural economic challenges continue to expose its external reserves to volatility, especially during periods of global and domestic uncertainty.

Analysts stress the need to boost non-oil exports and diversify sources of foreign exchange inflows.

They also recommend improving transparency in FX management and integrating Bureau De Change operators more effectively into the FX distribution framework.

Experts further note that restoring investor confidence, increasing oil production, and attracting foreign investment will be critical to stabilising reserves in the medium to long term.

In a conversation with Nairametrics, the founder/Chief Executive Officer of the Centre for the Promotion of Public Enterprise (CPPE), Dr Muda Yusuf, hinted that there is no cause for alarm as the drop is not significant, noting that Nigeria is in a fairly comfortable position with its external reserves.

He opined that some room for fluctuations should be allowed in the level of our reserves.

The CBN had, in its 2026 Macroeconomic Outlook for Nigeria, projected that Nigeria’s external reserves would rise to $51.04 billion in 2026, supported by stronger oil earnings, foreign exchange (FX) market reforms, and improved external inflows.

Cardoso said the gross reserves position now provides an import cover of 9.68 months for goods and services.