Nigeria’s recent surge in foreign investment may be boosting confidence in the economy, but the International Monetary Fund (IMF) has warned that the country must not become overly dependent on foreign portfolio investments, popularly known as “hot money.”
The warning comes as Nigeria records unprecedented capital inflows, stronger foreign exchange liquidity, and rising external reserves following a series of economic reforms introduced by the federal government and the Central Bank of Nigeria (CBN).
In its latest Article IV consultation report on Nigeria, the IMF praised authorities for reforms implemented over the past three years, saying they have strengthened macroeconomic stability and improved the country’s resilience.
However, the Fund cautioned that a significant portion of the inflows currently entering Nigeria consists of short-term portfolio investments that can leave the country just as quickly during periods of global uncertainty.
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“Directors called for reducing reliance on portfolio flows with roll-over risk,” the IMF stated, while also urging Nigeria to gradually remove remaining exchange restrictions and multiple currency practices when conditions permit.
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Nigeria Records Highest Capital Inflow in History
The IMF’s concern comes at a time when foreign investors are pouring billions of dollars into Africa’s largest economy.
According to the latest Capital Importation Report released by the National Bureau of Statistics (NBS), Nigeria attracted $10.4 billion in foreign capital during the review period.
The figure represents a 61 per cent increase compared to the previous quarter and an 84 per cent rise year-on-year.
Analysts at Quest Merchant Bank described the development as a historic milestone.
According to the bank, the latest figure is the highest quarterly capital inflow ever recorded in Nigeria’s history and places foreign investment well above pre-COVID-19 levels.
The analysts noted that foreign portfolio investments accounted for approximately 95 per cent of the total inflows, rising by 80 per cent quarter-on-quarter to about $9.9 billion.
Why Foreign Investors Are Returning
Market observers say Nigeria’s attractive interest rates, improved exchange rate stability, and confidence in ongoing reforms have encouraged foreign investors to return.
Data released by the Central Bank of Nigeria further highlighted the positive trend.
Nigeria recorded a net foreign exchange inflow of $9.22 billion in January 2026, nearly three times higher than the $3.11 billion recorded in December 2025.
Overall foreign exchange inflows climbed to $12.23 billion during the month, while outflows declined significantly, leaving the country with a much stronger net position.
External Reserves Cross $50 Billion
The influx of foreign capital has also strengthened Nigeria’s external reserves.
The IMF disclosed that the country’s gross international reserves increased from $40 billion at the end of 2024 to $46 billion in 2025.
The rise was driven by a current account surplus, foreign investor participation in CBN Open Market Operation (OMO) instruments, and the government’s Eurobond issuance.
Net international reserves also rose sharply from $23 billion to $35 billion within the same period.
The improvement has continued into 2026, with Nigeria’s external reserves recently surpassing the $50 billion mark for the first time in 17 years.
The development has boosted the CBN’s ability to support the naira and meet the country’s external financial obligations.
IMF Warns About ‘Hot Money’ Risks
Despite the positive figures, the IMF warned that portfolio investments remain highly vulnerable to sudden reversals.
Unlike foreign direct investments that often involve factories, infrastructure, and long-term projects, portfolio investments are usually placed in financial assets such as government securities and can be withdrawn quickly whenever investors perceive increased risk.
Economists often refer to such investments as “hot money” because of their tendency to move rapidly across markets in search of higher returns.
The IMF noted that rising geopolitical tensions, persistent inflationary pressures, higher food and fuel prices, and changing interest rate expectations in major economies could trigger capital outflows from emerging markets, including Nigeria.
IMF Urges Nigeria to Deepen Reforms
While commending Nigeria’s commitment to a more flexible exchange rate system, the Washington-based lender urged policymakers to focus on attracting more sustainable sources of foreign exchange earnings.
The Fund advised authorities to continue reforms aimed at improving productivity, encouraging long-term investment, and diversifying the economy.
It also recommended maintaining a tight monetary policy stance until inflation slows more convincingly and price stability is firmly established.
According to the IMF, Nigeria’s reforms have delivered notable gains, but preserving those achievements will require consistent policy discipline and reduced dependence on volatile foreign portfolio investments.
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