Insists foreign reserves not ordinary savings, but protection against disruptions
Admits Nigeria needs more rigorous assessment of cost of maintaining reserves
Calls for transparent reserve adequacy benchmarks, quarterly disclosures
Emmanuel Addeh in Abuja
The Chairman of the Alliance for Economic Research and Ethics (AERE), Dele Oye, yesterday faulted claims that Nigeria could be losing more than $10 billion annually from holding foreign reserves, arguing that the calculation fails to account for the different currencies, financing arrangements and risks involved.
Oye, a lawyer, said although the country’s reserve accumulation carries a cost and should be subjected to rigorous economic scrutiny, subtracting an estimated 3 per cent return on foreign assets from an assumed 20 per cent naira funding cost does not establish the Central Bank of Nigeria (CBN) actual cost of maintaining its external reserves.
Responding to comments by former Fidelity Bank chairman and former Managing Director of the Asset Management Corporation of Nigeria (AMCON), Mustafa Chike-Obi, Oye said Nigeria needed a more rigorous assessment of how much it costs to maintain its reserves, what risks they protect the economy against and how much the country should hold to withstand external shocks.
In a policy essay dated October 18, 2026, Oye said Chike-Obi had raised an important question about the economic implications of accumulating foreign reserves, but argued that the conclusion drawn from the interest-rate differential was not supported by sufficient evidence.
More fundamentally, Oye argued that the calculation compared the return on dollar-denominated assets with an assumed naira funding cost without establishing how the reserves were financed or the actual costs and risks associated with maintaining them.
“The useful conclusion is therefore neither that reserves are free nor that Nigeria is burning US$10 billion every year. The useful conclusion is harder and more valuable: Nigeria needs a transparent, country-specific answer to the question, adequate for what, against which shocks, and at what marginal cost?” he maintained.
Chike-Obi had argued that Nigeria’s foreign reserves earned about 3 per cent annually while the cost of naira funds used to support them was around 20 per cent, creating a potential 17-percentage-point annual loss if the exchange rate remained unchanged.
But Oye said the argument contained an important economic consideration but could not, without further evidence, be treated as an accurate measure of the country’s annual financial loss.
He explained that the naira interest rate and the return on dollar assets reflected different currencies, risks and financing arrangements. A proper comparison, he explained, would have to account for exchange-rate movements, hedging costs, the maturity of the instruments involved and the actual yields on the liabilities used to finance or sterilise reserve accumulation.
Oye maintained that the cost of reserve accumulation should be measured against the protection the assets provide when oil receipts decline, foreign investment retreats, external borrowing becomes difficult or pressure mounts on the naira.
He argued that foreign reserves were not ordinary savings that could be judged solely by the interest they earned, but a form of protection against disruptions that could otherwise destabilise the economy.
“An insurance policy appears wasteful in calm weather because the storm has not yet arrived,” he said. “The question is never whether insurance earns as much as risk capital in fair weather. The question is whether the country can survive the event for which the insurance exists,” he pointed out.
Oye acknowledged that Nigeria’s reserve position had improved significantly, but said the headline figure needed to be assessed alongside the amount readily available for use, existing foreign obligations and the country’s exposure to external shocks.
The former President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said the size of the gross reserve balance did not mean that the entire amount was freely available to the federal government for expenditure.
He explained that the country’s external reserves included distinct portions attributable to the CBN, the federal government and the federation, while the headline balance also needed to be examined alongside liquid assets, encumbered funds and net international reserves.
“A large gross balance can therefore be a sign of improved resilience without being freely spendable national cash,” he said.
The former Chairman of the Organised Private Sector of Nigeria (OPSN) also underscored the importance of distinguishing between gross reserves, liquid holdings and net reserves when assessing the country’s capacity to withstand external pressure.
The AERE chairman warned against proposals that would automatically transfer reserves above a predetermined threshold into a fund for domestic development projects or routine debt repayment.
He argued that such an arrangement could blur the distinction between monetary reserves and fiscal savings, potentially exposing the country to unnecessary financial and legal risks.
“The federal budget needs revenue, borrowing authority and fiscal institutions. The CBN needs a reserve buffer and a balance sheet fit for monetary stability,” he stated. “These are related national accounts, but they are not the same wallet,” he added.
He contrasted the statutory import-cover condition with the IMF’s projection of approximately 9.7 months of prospective import cover for Nigeria in 2026, while noting that the two measures might not be calculated on identical bases.
He argued that Nigeria should instead establish a transparent fiscal savings framework through which genuinely available oil revenues and other windfalls could be saved before becoming part of the central bank’s monetary reserve assets.
Such a framework, he said, should have clear deposit and withdrawal rules, legislative oversight and professional investment management.
Our stated that the CBN should maintain reserves at levels appropriate for the country’s economic circumstances and monetary stability, consistent with its statutory responsibilities.
Oye also cautioned against using foreign reserves to retire domestic or external obligations without first assessing the consequences for the country’s capacity to withstand future shocks.
While acknowledging that retiring expensive debt could be sensible, he said the decision should be based on whether the resulting savings outweighed the risks of reducing foreign-currency liquidity.
To improve reserve management, Oye proposed a series of measures aimed at making the country’s external position more transparent, reducing the cost of maintaining reserves and strengthening the sources of foreign-exchange earnings.
First, he called on the CBN to publish a quarterly reserve adequacy dashboard showing gross reserves, liquid reserves, blocked or encumbered amounts, net international reserves, months of prospective imports, short-term external debt coverage and the IMF’s reserve adequacy metric.
The disclosures, he said, should also include the volume and maturity profile of foreign investors’ holdings of CBN open-market operation instruments and other short-term domestic securities.
Second, Oye advocated a publicly explained reserve adequacy range rather than a rigid target. Such a benchmark, he said, should reflect the country’s import needs, debt maturities, exchange-rate regime, financial market depth and exposure to external shocks.
Third, he urged the authorities to reduce dependence on expensive, short-term foreign investment attracted by high yields, arguing that more stable domestic financing could lower the risks associated with sudden capital outflows.
He said the objective should be to address the liabilities that make reserve accumulation costly rather than simply reducing the reserve assets themselves.
Fourth, Oye called for a credible exchange-rate framework that would allow the naira to adjust to market conditions while the CBN intervened to contain disorderly movements.
He argued that maintaining an artificially predetermined exchange rate could require the country to hold larger reserves to defend a position that might not be sustainable.
Finally, he advocated diversification of the reserve portfolio, citing the CBN’s Domestic Gold Purchase Programme as an example of efforts to broaden the composition of external assets.
Oye described the initiative as strategically important because it linked reserve diversification to a traceable domestic mineral value chain, although he acknowledged that gold carried its own price and liquidity risks.
He also called for stronger formal channels for remittances, export proceeds and long-term investment, arguing that reserves built on sustainable foreign-exchange earnings would be more resilient than those dependent on reversible portfolio inflows.
“Mr. Chike-Obi is right to puncture the superstition that a larger reserve headline automatically means a richer Nigeria. But the opposite superstition is equally dangerous. The reserve balance is not a lazy dollar pile, and the MPR is not a universal invoice for holding it,” he maintained.
He said the priority should be to determine the actual cost of maintaining reserves, establish what risks each dollar protects against and ensure that fiscal savings are not confused with the central bank’s monetary responsibilities.