Nigeria spends more than $10 billion annually to maintain its foreign reserves, according to Mustafa Chike-Obi, former chairman of Fidelity Bank.
Chike-Obi made the claim during an episode of Policy Without Politics, a podcast he hosts with Ken Ikpe, arguing that the cost of maintaining the reserves must be weighed against their economic benefits.
He said Nigeria’s foreign reserves, valued at between $52 billion and $53 billion at the time of his remarks, earned an average return of 3 per cent from liquid assets held abroad, while the naira used to finance them cost about 20 per cent.
“So now you have an asset that’s yielding 3% at best today. But you are buying it with naira and you’re paying people 20 percent on the Naira. So for every dollar reserve you have, you are losing 17 percent a year if the Naira stays at the same nominal level,” Chike-Obi said.
He estimated that the difference between the cost of funding the reserves and the returns they generate amounted to more than $10 billion annually.
“So the $52-$53 billion reserves today is costing Nigeria an average of 17 percent. If you multiply 17 percent by $52 billion, I think you get over $10 billion a year. That’s the cost of maintaining the reserves,” he said.
Why Nigeria Needs Foreign Reserves
Chike-Obi cautioned against assuming that a larger foreign reserve automatically puts Nigeria in a stronger economic position.
“My problem with the reserves is that Nigerians now feel the bigger the reserves, the better off Nigeria is. That statement is inaccurate because the dollars to be reserves have to be invested, have to be invested in liquid instruments that are held abroad,” he said.
According to the former bank chairman, Nigeria’s reserves are held in liquid financial instruments with institutions abroad, including branches of Nigerian banks and JP Morgan.
“Some of them are branches of Nigerian banks. So First Bank London has some. I know Zenit Bank London may have some. JP Morgan has some,” he said.
He explained that assets must be readily accessible to qualify as foreign reserves, noting that a 10-year South African bond would not meet that requirement.
“If you bought a 10-year bond, for example, a South African bond, it will not count as reserves,” Chike-Obi added.
Chike-Obi Explains What Reserves Should Cover
The investment expert identified two major reasons for holding foreign reserves: meeting external financial obligations when they fall due and reassuring trading partners and lenders that Nigeria can pay for imported goods.
He argued that the appropriate reserve level should be determined by the country’s expected foreign currency needs rather than the size of its reserves alone.
“What that amount is needs to be managed. So bigger is not better. You need to get a schedule of your foreign obligations when they do and keep dollars that can match that,” he said.
Chike-Obi admitted that he did not know the precise level of reserves Nigeria required but suggested it was considerably below $52 billion.
He added that the appropriate amount would depend partly on the country’s reliance on imported goods.
“And the more foreign good dependent you are, obviously the larger your reserves should be,” he said.
Nigeria’s Foreign Reserves Rise to $55.09bn
Data from the Central Bank of Nigeria (CBN) showed that the country’s foreign reserves stood at $55.09 billion on October 14, 2026, rising from $51.94 billion on July 28.
The figures indicate an increase in Nigeria’s foreign reserves during the period, although Chike-Obi’s comments highlight the importance of considering the cost of maintaining the reserves alongside their role in supporting external payments and confidence in the economy.
