CBN’s Reforms Drive FX Inflows to $112bn, Raise Investors’ Confidence

Goddy Egene writes on how reforms by the Central Bank of Nigeria is helping to boost foreign exchange inflow into the Nigerian economy

The Central Bank of Nigeria (CBN’s) decision to clear over $7 billion unsettled foreign exchange (FX) backlogs has raised investors’ confidence in the economy, supporting dollar inflows and foreign reserves accretion. Nearly three years after the backlog clearance, FX inflows into the economy rose significantly, hitting $112 billion in 2025. Market analysts said rising autonomous inflows, including diaspora remittances, foreign portfolio investment, non-oil export proceeds show positive effect of the reforms in attracting foreign capital to the domestic economy.

The rising investors’ confidence in the economy started with a systematic planning and commitment to due process through policies initiated by a combination of  the CBN and other fiscal authorities.

The CBN’s decision to clear over $7 billion unsettled FX backlogs raised investors’ confidence in the economy, supporting dollar inflows and foreign reserves accretion, CBN Governor Olayemi Cardoso said. The CBN boss had explained that although he had no idea where the fund for the backlog clearance would come from, when he assumed office, but he believed it was the right thing to do, and gave investors his word.

He said: “Credibility is at the heart of any central bank. If you don’t have credibility, people do not trust you and they do not invest in your economy. When I took office, I made a promise we would pay the backlog, the verifiable backlog of monies that were owed by Nigeria to third parties.

“And it was, at the time, estimated at over $7 billion. And to be honest with you, I had no idea how I was going to do it, but I just felt it was not something to be negotiated.”

Cardoso explained that Nigeria needed to ensure that its integrity is maintained. He said the apex bank started with a forensic audit to understand the issues better and based on the recommendations, the backlog of foreign exchange transactions was paid, which was a huge sacrifice.

He explained that: “As a going concern, the CBN knows that if it expected people to continue to trust and invest in our economy, you’ve got to keep your promises.” Some of these moves, including reforms in the exchange rate are key factors that continue to attract global investors into the economy.

Expectedly, forex inflows into the domestic economy closed 2025 at $112 billion, a new report from Financial Markets Dealers Association (FMDA) has shown.

The forex inflows were dominated by autonomous sources — private capital flows outside the CBN’s direct control — accounting for 64.94 per cent of total FX inflows during the year. The report, which also showed that the CBN’s own FX sales rose by 126.37 per cent within the coverage period, hit $8.94 billion from $3.95 billion recorded in the previous year. Autonomous inflows surged to $72.91 billion in 2025, up from $59.29 billion in 2024 and $41.80 billion in 2023, reflecting a near-doubling of private-sector dollar flows in two years.

The FMDA data reveal a market in which rising autonomous inflows are progressively displacing CBN-supplied liquidity as the primary driver of FX availability, even as the apex bank continues to play a stabilising role.

Total FX utilisation reached $47.17 billion in 2025, driven by a dramatic surge in invisible-related transactions and sustained industrial-sector demand. The data reveal a significant compositional shift in how Nigeria consumes its foreign exchange.

Invisible-related FX utilisation surged to $27.27 billion in 2025 from $11.10 billion in 2024, with financial services alone accounting for $21.22 billion. Also, total import-related FX demand rose more moderately, from $15.54 billion in 2024 to $19.90 billion in 2025, while the industrial sector remained the largest merchandise-related source of demand at $8.43 billion, up from $7.96 billion in 2024.

“Oil-sector FX demand nearly doubled, from $2.26 billion in 2024 to $4.98 billion in 2025. Business services demand leapt from $702.38 million to $3.48 billion, while educational services demand fell sharply from $396.40 million in 2023 to just $55.16 million in 2025,” the report said. The data indicates that invisible transactions — services, financial flows, and cross-border payments — have now eclipsed merchandise imports as the dominant driver of FX demand in Nigeria.

FX backlogs cleared

In the foreign exchange market, the country faced a backlog of over $7 billion in unfulfilled commitments and a fragmented FX regime characterised by multiple forex rates, which had encouraged arbitrage opportunities. This regime stifled much needed foreign investment, and led to the depletion of our external reserves which fell to $33.22 billion in December 2023. It must also be understood that the cost of the FX subsidy regime is estimated to far exceed that of fuel subsidies.

The apex bank has also undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled it to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future..To further enhance the functionality of the foreign exchange market, the CBN introduced an electronic FX matching system, which has proven effective in other markets. With these developments came positive Fitch Ratings on the Nigerian economy, signaling positive fallout from the reforms.

The global rating agency said that from exchange rate unification to reduce arbitrage in the markets, introduction of electronic FX matching platform and a new FX code to enhance transparency and efficiency in the market, as well as deployment of monetary policy tightening to keep inflation on check, the CBN has demonstrated commitment to achieving sustainable economic growth and exchange rate stability. Already, the Fitch rating moved Nigeria’s long-term foreign-currency issuer default rating (IDR) from negative to stable, meaning that the country stands a better chance of attracting foreign investment, borrow money on international markets at better interest rates, and boost investor confidence.

Fitch also applauded government’s commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening, and steps to end deficit monetisation as well as fuel subsidies removal. “These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks,” the agency stated.

The S&P Global Ratings, also revised its outlook on Nigeria to “positive” from “stable” on Friday, backing the country’s ongoing economic reforms, and also affirmed the country’s rating at “B-/B”. “The monetary, economic and fiscal reforms being implemented by Nigerian authorities will yield positive benefits over the medium term,” S&P said.

Moody’s also upgraded Nigeria’s rating by one notch to “B3” from “Caa1”, citing notable improvements in the country’s external and fiscal positions, while Fitch last month kept its “B” rating and “stable” outlook. The rating agencies continue to cite FX reforms instituted by CBN as crucial in the current macroeconomic stability and push to tame inflation.

President, Association of Bureaux De Change Operators of Nigeria, Dr. Aminu Gwadabe, applauded the rating upgrade. He said the FX reforms have really supported the stability in exchange rate, and is helping the economy to achieve desired growth. Other analysts described the S&P rating as ‘a significant step forward in restoring investor confidence and economic stability”. According to them, the development means an improvement in Nigeria’s creditworthiness, which could open up new opportunities for the country across several sectors.

Views from stakeholders

The Convener of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the data pointed unambiguously to the impact of reform. “The autonomous inflows are driven by the reform. Remittances from the diaspora, inflows from foreign portfolio investors, non-oil export proceeds — all manner of things outside the traditional sources of our forex. This reflects the fact that the reform has positioned the economy to attract those inflows,” he said. On the rebound in CBN FX sales, Yusuf was careful to place the development in proper context.

“It is not necessarily because the CBN has significantly increased its intervention. A lot of inflows are coming in. Those are not CBN funds. In fact, there was a time the CBN was even buying forex on the market because of the liquidity. The bigger factor is the supply side — the fact that autonomous inflows have increased significantly,” he said.

The erstwhile Director General of the Lagos Chamber of Commerce and Industry (LCCI) also addressed the surge in invisible-related demand, noting that greater caution was needed before drawing conclusions. “Invisible covers a lot of things. When you are paying foreign debt, it is a financial services transaction. When airlines come to Nigeria, when shipping companies operate here, when expatriates come into oil and gas and tech — all of these services have to be paid for in foreign currency. There is a lot of international transaction going on now because of the confidence the reform has restored. That is what I think is behind that increase,” he explained.

In his comments, the  CEO of ECL Asset Management, Mr. Charles Fakrogha, said the recovery in both FX sales and autonomous inflows was consistent with what the capital market was also signaling. “The kind of activity we are seeing from the FX market shows there are a lot of activities in terms of imports and exports. Most of these companies import raw materials, some export finished products — all of this will account for the increase we are seeing,” he said.

However, Fakrogha expressed concern about the dominance of financial services in FX utilisation. “Financial services — you have seen a lot of activities. We have seen so many financial institutions springing up. And yet the real sector is not being carried along. When it is tough for financial services to give out loans and recover them, what happens? They go to the treasury bills market — safe investment. And the real sector suffers. These are the structural imbalances in the economy that we are seeing,” he noted.

On the role of exchange rate unification in driving inflows, Fakrogha was emphatic. “That is the fundamental of it. The unification has closed the gap for unnecessary speculation. The CBN has done quite a lot in terms of maintaining stability. If not for that unification, the dollar-naira rate would have gone beyond what we are seeing,” he said.

The CEO of Globalview Capital, Mr. Aruna Kebira, argued that improved regulation and recapitalisation of financial institutions had been equally pivotal in attracting capital inflows. “There is no direct investor that would not like to do business with a well-capitalised stockbroking firm. The regulation is so strong. All the banks are recapitalised, insurance companies are in the process of recapitalisation, and PFAs are also being recapitalised. Things have actually opened up,” he said.

“Do you know that Nigerians in diaspora now have serious confidence in the Nigerian stock market? The movement from 58,000 to 250,000 points — it is not magic. Money is coming in. It is for investment,” said Kebira.

According to him, there is a growing confidence of diaspora investors as a structural source of autonomous inflows, stressing that several of them have already set aside funds for investing in upcoming Dangote Refinery’s Initial Public Offer (IPO).

On assuming office in October 2023, Cardoso had prioritised reforms to rebuild Nigeria’s economic buffers and strengthen resilience.

CBN’s policies, including the currency reforms, led to investment inflows from abroad and reduced interventions in the domestic forex market.