• Portfolio investments hit $12.2bn, dwarfs $2.2bn direct investment inflows
•Lender identifies overlapping budget cycles as key weakness
•Calls for better expenditure forecast, credible budget calendar
Emmanuel Addeh in Abuja
Nigeria’s external accounts lost the benefit of a substantial inflow of foreign exchange in the first half of 2026, as unexplained transactions totalling $12.4 billion wiped out much of the combined gains from the country’s current account surplus and net financial inflows, the World Bank has said.
The unexplained outflows, recorded as net errors and omissions in the balance of payments, likely reflected, in part, oil export proceeds that were not repatriated into the country, according to the bank’s latest assessment of the Nigerian economy.
The development highlighted a persistent weakness in Nigeria’s foreign exchange market, where limited repatriation of export earnings and low Foreign Direct Investment (FDI) have left the country increasingly dependent on short-term portfolio investments to support foreign exchange supply and build external reserves.
However, the global lender did not say the $12.4 billion represented stolen funds or missing oil revenue. The figure only reflected a discrepancy between recorded external transactions and financial flows that could not be fully reconciled. It therefore requires further clarification from the government.
According to the World Bank, the gap likely reflected, in part, oil export proceeds that were not repatriated. Such proceeds may be retained in offshore accounts or used to meet existing obligations, including repayments under oil-backed financing arrangements, rather than returned to Nigeria through the domestic foreign exchange market.
“In principle, both current account surpluses and net financial inflows should support reserve accumulation, but large net errors and omissions of $12.4 billion in H1 2026 offset much of their combined total, likely reflecting in part oil export proceeds that were not repatriated.
“As a result, FPI (Foreign Portfolio Investment) has been a major driver of the continued rise in gross international reserves, which increased from $45.5 billion at end-2025 to $53.8 billion at end-August 2026,” the World Bank document titled: “Beyond the Federal Purse: How Higher Revenues Shaped State Priorities”, stated.
The World Bank also identified oil pledges as one of the factors limiting the repatriation of export earnings, although it did not establish how much of the $12.4 billion discrepancy was attributable to such arrangements.
The discrepancy nevertheless raises questions about the transparency and reconciliation of Nigeria’s export earnings, particularly in the oil sector, where foreign exchange receipts are critical to reserve accumulation and exchange rate stability.
Other possible explanations for net errors and omissions include incomplete reporting, differences in the timing of transactions and gaps in the recording of cross-border financial flows.
Besides, the World Bank report showed that Nigeria’s current account surplus rose to $12 billion, equivalent to 7 per cent of Gross Domestic Product (GDP), in the first half of 2026, compared with $5.5 billion in the second half of 2025 and $8.6 billion in the corresponding period of 2025.
However, the country recorded net portfolio investment inflows of $12.2 billion during the period, an 80.8 per cent increase over the second half of 2025, while direct investment liabilities fell by 15 per cent to $2.2 billion.
The bank noted that, in principle, the current account surplus and net financial inflows should have supported a stronger accumulation of foreign reserves, but the $12.4 billion net errors and omissions figure offset much of their combined contribution.
Nigeria’s gross international reserves nevertheless increased from $45.5 billion at the end of 2025 to $53.8 billion at the end of August 2026, supported largely by portfolio investment inflows.
The World Bank, however, cautioned that the absence of a more recent net reserves estimate beyond the $34.8 billion reported at the end of 2025 limited its ability to assess the country’s usable external reserve buffers.
The growing reliance on portfolio investments also exposes the economy to sudden capital outflows whenever global financial conditions deteriorate or investors become less willing to hold assets in emerging markets.
Between January and August 2026, foreign portfolio investment accounted for 45 per cent of gross inflows through the Nigerian Foreign Exchange Market, almost entirely in fixed-income instruments, including investments attracted by high domestic yields and relative exchange rate stability.
The bank observed that although the functioning of the foreign exchange market had improved markedly since 2024, the supply of foreign exchange continued to depend heavily on short-term foreign portfolio investment.
It said foreign direct investment remained low, while the repatriation of export proceeds was still limited, partly because of oil pledges.
According to the report, the Central Bank of Nigeria (CBN) had introduced reforms aimed at improving the operation of the foreign exchange market, including integrating bureaux de change into the official market through a centralised platform, standardising due diligence requirements and removing restrictions that previously constrained international oil companies from transferring their export proceeds abroad.
Other measures included granting unfettered access to domiciliary account balances, simplifying remittance procedures and raising the advance-payment limit for imports.
According to the bank, these reforms could encourage more stable foreign investment by improving the predictability and convertibility of the foreign exchange regime.
It also recommended progressively allowing banks to hold net open foreign exchange positions and improving the transparency of the CBN’s intervention framework to deepen the market and reduce exchange rate volatility.
The World Bank said sustained macroeconomic stabilisation and structural reforms capable of improving investment returns and reducing risks would be necessary to attract more durable foreign exchange inflows.
Beyond the external sector, the report warned that rising expenditure pressures could erode the federal government’s improved fiscal position and widen Nigeria’s consolidated fiscal deficit to about 3.5 per cent of GDP in 2026.
The warning comes despite an improvement in federal government revenue in the first half of the year, supported by higher distributable oil revenues, stronger corporate tax collections and increased independent revenues.
According to the report, federal revenue rose to N6.2 trillion, equivalent to 2.5 per cent of GDP, in the first half of 2026, from N3.6 trillion, or 1.6 per cent of GDP, in the corresponding period of 2025.
The increase, it stressed, helped narrow the federal fiscal deficit to N9.9 trillion, or 4 per cent of GDP, from N11 trillion, equivalent to 5 per cent of GDP, a year earlier.
However, the World Bank cautioned that the improvement should be interpreted carefully because reported federal capital spending remained unusually low.
Capital expenditure fell to N700 billion, representing 0.3 per cent of GDP, in the first half of 2026, compared with one per cent of GDP in the corresponding period of 2025.
At the same time, interest payments rose to N7.7 trillion, or 3.1 per cent of GDP, from N5.6 trillion, equivalent to 2.5 per cent of GDP, reflecting persistently high domestic borrowing costs.
Personnel expenditure also increased to N4.2 trillion from N3.7 trillion following wage adjustments.
The bank warned that the combination of recurrent expenditure obligations, high debt-service costs and the possible acceleration of capital spending later in the year could put additional pressure on public finances.
It also identified overlapping budget cycles, weak alignment between approved allocations and implementation capacity, and delays in expenditure reporting as persistent challenges undermining budget credibility.
At the federation level, the report showed that gross Federation Account revenues rose in nominal terms to N18.9 trillion in the first half of 2026 from N17.7 trillion a year earlier, although they declined as a share of GDP to 7.6 per cent from eight per cent.
Besides, distributions to the three tiers of government increased to N10.5 trillion from N7.6 trillion, supported partly by lower deductions from Federation Account revenues, the report stated.
The World Bank attributed the reduction in deductions partly to a February 2026 executive order that eliminated the Nigerian National Petroleum Company Limited (NNPC) management fee and Frontier Exploration Fund (FEF) deductions and redirected gas-flaring penalties to the Federation Account.
But despite the improvement in revenue distribution and the narrower federal deficit, the bank maintained that higher spending pressures were likely to widen the consolidated fiscal deficit for the full year.
It called for better expenditure planning, a more credible budget calendar and timely, comprehensive and consistently classified fiscal reporting to strengthen budget execution and improve public financial management.