• Nigeria’s FX reserves have risen sharply, yet the naira remains weak, revealing a structural mismatch between dollar inflows and the economy’s real foreign exchange needs.

• Inflation has eased following the November rebasing, but price pressures and FX constraints continue to limit confidence in the naira and market depth.

• Dollar inflows are concentrated in debt and oil, while demand comes from fuel imports, services and corporates unable to access official FX channels.

Nigeria entered late 2025 and early 2026 with what appears, at first glance, to be a strengthening external position. Foreign exchange reserves climbed to their highest level in several years, supported by external borrowing, portfolio inflows and improved oil receipts. Inflation, long one of the country’s most destabilising macroeconomic variables, also showed signs of easing after the long-awaited rebasing of the consumer price index in November, which mechanically lowered the headline rate.

Yet despite these developments, the naira has remained under sustained pressure. It continues to trade at historically weak levels against the dollar on both the official Nigerian Autonomous Foreign Exchange Market (NAFEM) and the parallel market. This apparent contradiction has fuelled debate over the actual state of Nigeria’s foreign exchange position. Increasingly, analysts converge on a simple conclusion: the country does not suffer from an absolute shortage of dollars, but from a profound mismatch between how dollars enter the economy and where they are needed.

Nigeria’s recent reserve accumulation has been mainly driven by external financing rather than by a broad-based expansion of export earnings. Eurobond issuances, multilateral loans and structured oil-backed facilities have boosted headline reserves, improving the sovereign’s liquidity profile and reassuring creditors. However, these inflows are, by nature, temporary and often encumbered by future repayment obligations. They add to reserves but do not automatically translate into usable foreign exchange circulating through the domestic economy.

At the same time, the structure of dollar demand has remained essentially unchanged. Nigeria continues to rely on imports for a portion of its refined fuel, machinery, pharmaceuticals, and, mostly, food inputs. Even as domestic refining capacity is expected to improve, fuel imports still represent one of the largest and most rigid sources of dollar demand. Added to this are service-related outflows such as education, healthcare and professional services, as well as the needs of multinational companies seeking to repatriate profits or settle cross-border obligations.

The easing of inflation following the November rebasing has helped restore some macroeconomic clarity, but it has not fundamentally altered these dynamics. While the lower headline inflation rate has reduced pressure on real interest rates, it has not eliminated the underlying cost-of-living strain or the demand for dollars as a store of value. For households and businesses alike, confidence in the naira remains fragile, shaped by years of volatility, controls and delayed access to foreign exchange.

A market where dollars exist but do not circulate.

This is where the concept of a dollar mismatch becomes critical. In Nigeria, dollars are earned mainly by a narrow segment of the economy, primarily the oil sector and the federal government. Meanwhile, the bulk of dollar demand originates from a much broader base: manufacturers, importers, service providers, students, medical travellers and foreign companies operating locally. The channels linking these two sides remain imperfect, constrained by administrative bottlenecks, uneven market access and lingering trust issues.

The liberalisation of the foreign exchange regime and the unification of exchange rates were intended to address this problem precisely. Market-based pricing under NAFEM has improved transparency and reduced some distortions. Trading volumes have increased compared with previous years, and the central bank has stepped back from heavy-handed interventions. Still, liquidity remains shallow, and many economic actors report delays or partial allocations when seeking dollars through official channels.

As a result, the parallel market continues to play a significant role, acting as a pressure valve for unmet demand. The persistence of a premium between official and informal rates is not merely a speculative phenomenon; it reflects structural frictions in the distribution of foreign exchange. In such an environment, even rising reserves struggle to anchor expectations, because market participants focus less on headline numbers and more on their own ability to access dollars when needed.

For foreign investors and international companies, this mismatch translates into operational risk. Capital may enter the country relatively easily during periods of high yields and favourable sentiment, but exiting remains more complex. The memory of past episodes of profit repatriation delays continues to shape behaviour, reinforcing caution and, in some cases, limiting reinvestment decisions.

More broadly, the weak transmission of dollar inflows to the real economy dampens the potential benefits of reserve accumulation. Manufacturers face higher input costs, consumers confront reduced purchasing power, and businesses operate with thin margins in a price-sensitive market. The naira, in this context, becomes less a reflection of reserve adequacy and more a barometer of structural imbalance.

Ultimately, Nigeria’s currency challenge highlights the limits of focusing on aggregate indicators alone. Reserves can rise, inflation can fall after rebasing, and confidence can improve at the margins. Yet, the currency may remain fragile if the underlying flow of dollars does not align with the economy’s needs. Addressing this mismatch will require more than financial inflows. It will depend on expanding non-oil exports, reducing import dependency, improving domestic energy supply and ensuring that foreign exchange markets function with depth, predictability and trust.

Idriss Linge