Joseph Bakare
The head of fixed income and FX at Chapel Hill Denham Securities, Dikpa Jay, has
said the buildup in Nigeria’s external reserves validates expectations held earlier in the year and reflects a combination of stronger oil and gas revenue prospects.
Jay, speaking in a television interview with CNBC, also remarked that the ongoing foreign-exchange reforms and sustained investor appetite will boost high-yield Nigerian assets.
Nigeria’s external reserves have crossed the $50 billion mark, a symbolic and closely watched threshold that is reinforcing investor optimism around the country’s foreign-exchange outlook, even as the naira remains under pressure in the near term.
The reserves increase comes after Nigeria added nearly half a billion dollars in just the first four days of the month, according to the program host.
The move has fueled fresh debate over whether a larger reserve buffer will be enough to deliver lasting currency stability and potentially a stronger naira in the second half of the year.
Jay argued that the reserve accretion is not happening in isolation. Rather, it is being supported by external conditions that, despite broader global uncertainty, have remained relatively favorable for Nigeria’s export earnings position. He said that from the perspective of the country’s ability to generate additional revenue from oil and gas, current dynamics have been positive and are helping explain the pace of reserve accumulation.
He also pointed to the impact of FX market reforms, which he said are improving market stability by allowing price discovery to be increasingly determined by demand and supply. In his view, that reform momentum is helping deepen confidence among both domestic and foreign participants.
Another major support for Nigeria’s FX position, according to Jay, is the level of yields available on government securities. With returns on some Nigerian instruments trading above 20 per cent, he said the country continues to attract foreign investors searching globally for higher yield opportunities.
That demand, spanning both the debt and equity markets, is helping underpin FX inflows and could support a more stable trading environment through the second half of the year.
“I expect the FX market to actually be very stable” in the second half, Jay said, citing reforms and robust demand for Nigerian assets.
Still, the naira’s recent performance shows that stronger reserves alone may not immediately translate into outright appreciation. While the currency had at one point traded above the 1,400-per-dollar level, Jay noted that it is now back below that threshold, though he expects it to continue moving within a range in the near term. He said there could still be episodes where the naira weakens past 1,400 again before regaining strength.
On valuation, Jay acknowledged views from some market participants that the naira may be undervalued by more than 10%, but he stopped short of endorsing a single fair-value level. Instead, he emphasized the broader direction of sentiment, saying many analysts and business leaders still believe the naira could appreciate further by year-end if confidence in reforms and macroeconomic management persists.
He referenced comments from leading industrialist Aliko Dangote suggesting the naira could eventually strengthen much more significantly, saying such public expressions of confidence help shape broader market expectations. While a move to 1,000 naira to the dollar would represent a dramatic shift from current levels, Jay’s broader point was that expectations around a firmer currency are becoming more widespread.
Beyond the FX market, Jay said the Debt Management Office, or DMO, should make reducing borrowing aggression and lowering funding costs its top priorities in the second half of the year. His remarks came against the backdrop of an ongoing policy debate over debt sustainability and the government’s financing strategy.
According to Jay, the DMO must pay close attention not only to how much it raises, but also to the price it pays to do so. He cited a recent Nigerian Treasury bill auction where market participants had expected the one-year paper to clear around 16.1 per cent, but a change in the issuance calendar increased the offered amount sharply, forcing the government to borrow at a higher 16.35 per cent yield.
For Jay, that episode underscored a broader market lesson: when investors perceive the government as overly aggressive in its borrowing plans, they demand a premium. As a result, he argued that moderating issuance volumes could help reduce borrowing costs over time.
He said the DMO should be judged not just by its ability to raise funds, but by the efficiency and affordability of that funding.
That stance suggests a more cautious domestic debt strategy may be needed if authorities want to preserve confidence, support market liquidity and avoid unnecessarily high interest expenses.
It also ties back to the FX story, since elevated local borrowing costs can shape capital flows, inflation expectations and overall macroeconomic stability.
On external financing, Jay said the possibility of a Eurobond issuance before year-end remains open.
He noted that the government had earlier indicated it could return to international markets later this year, and he said that option has not been ruled out.
At the same time, he flagged market talk that some of the external borrowing needs that might otherwise have been met through a Eurobond may have already been addressed through other financing arrangements, including a reported transaction involving Abu Dhabi.
Even so, Jay said conditions could become more favorable later in the year if global rates ease and Nigeria is able to capitalize on its current ratings position to borrow more cheaply than it did previously.
Taken together, the interview painted a cautiously constructive picture for Nigeria’s macro outlook.
The reserves milestone is clearly a positive signal for external buffers and investor confidence, but the path to a materially stronger naira will likely depend on more than reserve growth alone. Sustained FX reforms, continued inflows into local assets, prudent debt management and lower borrowing costs may ultimately determine whether Nigeria can convert this reserves momentum into lasting currency stability in the months ahead.