Foreign Exchange Reserve Management Policy in Nigeria: Issues for Legislative Consideration

Abstract

This policy analysis has robustly scrutinized the Nigeria’s foreign reserve management with a view to determining its adequacy and better management strategies. Our perspective analysis showed that the rising levels of Foreign Exchange Reserve (FER) have succeeded in infusing basic confidence, both to the markets and policy making. However, data analysis revealed that neither capital inflow to Nigeria nor the size of its FER is excessively large when compared to some other fellow oil producing countries (for example, Saudi Arabia and Algeria). Our analysis showed that Nigeria has the capacity to finance at least Six months import bills as against three months benchmark. The leading sources of accretion to Nigeria’s FER is exports of crude oil and not Foreign Direct Investment (which is more stable), as in the cases of China and Singapore. Therefore, Nigeria, which like many other countries, is accumulating FER for precautionary and safety motives, especially given the experience of 2016 economic recession, should avoid utilizing reserves to finance unplanned budgetary items, infrastructure inclusive. Economists frown at such utilization on the ground that they oftentimes yield low or negative returns due to political interference and economic rigidity.