Group Disputes Chike-Obi’s $10bn Foreign Reserves Loss Claim

The Alliance for Economic Research and Ethics has challenged Mustafa Chike-Obi’s claim that Nigeria loses more than $10 billion annually from maintaining its foreign reserves, arguing that the calculation does not establish the actual cost of holding the country’s external assets.

In a policy essay issued on October 18, the Alliance’s chairman, Dele Kelvin Oye, said the former Fidelity Bank chairman raised a valid question about the cost of maintaining reserves but relied on a calculation that does not account for the Central Bank of Nigeria’s actual financing arrangements and the risks associated with reserve management.

Chike-Obi had argued that Nigeria’s foreign reserves earn an average return of three per cent on liquid assets held abroad, while the naira used to fund them costs about 20 per cent.

He concluded that the difference represents an annual loss of 17 per cent on every dollar held in reserves, estimating that maintaining reserves of $52 billion to $53 billion costs the country more than $10 billion annually.

However, Oye said applying the 17 per cent difference to reserves of $52 billion to $53 billion produces an estimated $8.84 billion to $9.01 billion, rather than more than $10 billion. Reserves would need to reach approximately $58.82 billion for the calculation to exceed $10 billion.

“The useful conclusion is therefore neither that reserves are free nor that Nigeria is burning US$10 billion every year,” Oye said.

“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?”

Pinnacle Daily earlier reported on October 18 that Chike-Obi explained that a larger reserve balance does not automatically translate into improved living standards.

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He argued that reserves should be determined by the country’s foreign obligations, import dependence and need to maintain confidence among trading partners and lenders.

Oye agreed that reserves carry an opportunity cost but said comparing the return on foreign-currency assets directly with a naira interest rate does not, on its own, establish the net cost to the country.

He said a reliable assessment must identify how the reserves were acquired, the instruments used to finance or sterilise the resulting naira liquidity, their interest rates and maturities, and the income earned on the foreign assets.

The monetary policy rate, he added, should not be treated as evidence that every dollar in the CBN’s reserves was financed through naira borrowing at that rate.

In September 2026, the Monetary Policy Committee reduced the monetary policy rate to 23 per cent. Oye said the policy rate was not a receipt showing what the CBN paid to maintain every dollar in its reserve portfolio.

“A rigorous carrying-cost estimate would identify the marginal reserve acquisition, the specific sterilisation instrument, its tenor and yield, the exchange-rate exposure, and the income earned by the reserve portfolio,” he said.

“The CBN’s balance sheet, not a conference-room spread, must do the accounting.”

The dispute comes as Nigeria’s reserves have increased in recent months. According to CBN data cited by Pinnacle Daily, gross reserves stood at $55.09 billion on October 14, up from $51.94 billion on July 28.

Oye also cited the CBN’s reserves data for September 22, which recorded gross reserves of $54.81 billion on a 30-day moving-average basis. Of this amount, $54.30 billion was classified as liquid, while $510 million was blocked.

He cautioned against treating the headline reserve figure as money that the government could freely spend, explaining that the stock includes different components and must be assessed alongside existing foreign obligations and the amount readily available for use.

External reserves are held to meet balance-of-payments pressures, provide foreign-currency liquidity, support confidence in monetary and exchange-rate policy, and help the country meet external obligations when access to financing becomes difficult.

Oye said these functions explain why reserve assets are prioritised for safety and liquidity rather than maximum returns.

“Assets that maximise return at the expense of liquidity are not reserves in any meaningful sense; they are investments wearing the wrong uniform,” he said.

He also cited the International Monetary Fund’s 2026 Article IV assessment, which put Nigeria’s gross international reserves at $46 billion and net international reserves at $35 billion at the end of 2025.

The IMF estimated that gross reserves represented 157 per cent of its Assessment of Reserve Adequacy metric, above the 100 to 150 per cent range generally considered broadly adequate for precautionary purposes.

However, the Fund said its gross-reserve figure under the Balance of Payments and International Investment Position Manual, sixth edition, would be about $8 billion lower than the CBN-reported figure, principally because of reserves pledged under a securities-lending arrangement.

Oye said these measures provide a more useful basis for assessing reserve adequacy than relying on the gross headline figure alone. The assessment should consider potential pressure from exports, short-term debt, other portfolio liabilities and broad money, alongside the country’s capacity to withstand external shocks.

He noted that the IMF had assessed Nigeria’s reserve position as being above its usual precautionary range and indicated that reserve accumulation could slow when appropriate. But the Fund also identified risks from foreign investors’ holdings of CBN open-market operation instruments, including the cost of maintaining high yields and the possibility that investors could withdraw their funds.

Oye said this created a policy challenge: reducing reliance on expensive, reversible capital inflows without weakening the foreign-currency buffer needed if those funds leave the country.

He also rejected the idea that reserves above a politically determined threshold should automatically be transferred into a domestic development fund or used for routine debt repayment.

According to him, such a move could expose the country to external risks and must be assessed against the legal limits governing the CBN’s management of reserve assets.

Instead, he called for a clearer separation between the management of monetary reserves and the government’s responsibility to save and finance public spending.

He said oil and other windfall revenues genuinely available to the Federation should be managed through a transparent fiscal savings and stabilisation framework, with clear rules for deposits and withdrawals, legislative accountability and professional investment management.

Oye also urged the CBN to publish a quarterly reserve dashboard showing gross and liquid reserves, blocked or encumbered assets, net international reserves, months of prospective import cover, short-term external debt coverage and the IMF’s adequacy metric.

He said the country should adopt a publicly explained reserve-adequacy range informed by its external obligations, import requirements, exchange-rate arrangements and exposure to sudden capital outflows.

The Alliance chairman further called for a reduction in reliance on high-yielding, short-term foreign investment in domestic monetary instruments, alongside stronger foreign-exchange earnings from exports, remittances and long-term investment.

He said a more flexible exchange rate and deeper formal foreign-exchange markets could also reduce the level of reserves required to manage pressure on the currency.
Oye described the CBN’s domestic gold purchase programme as a useful effort to diversify the composition of reserves, while cautioning that gold also carries price and liquidity risks.

He concluded that Nigeria should assess reserves by what they protect, what they cost to maintain and how much is available during a crisis, rather than treating a rising balance as automatic evidence of economic progress or as money available for immediate spending.

“Mr Chike-Obi is right to puncture the superstition that a larger reserve headline automatically means a richer Nigeria,” he said.

“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 that the country’s actual carrying cost must be calculated using the CBN’s balance sheet and the relevant financing, currency, maturity and liquidity risks, while ensuring that the reserves remain sufficient to protect the economy against external shocks.