Pre-election Spending Can Destabilise Forex Market: CBN Gov

Nigeria’s gross foreign exchange reserves have climbed to $50.4 billion, the highest level in 13 years, but central bank governor Olayemi Cardoso has warned that unchecked pre-election spending and widening fiscal deficits could undermine recent gains in the foreign exchange market.

Cardoso spoke in Abuja at a briefing following the two-day meeting of the Central Bank’s Monetary Policy Committee, where he attributed the rise in reserves to stronger oil and non-oil exports, as well as increasing diaspora remittances. 

“Underpinning all these, quite frankly, is market confidence,” he said. “Without market confidence, no matter what you do, you will find you will significantly sub-optimise.”

He explained that the CBN and economic authorities had spent the past months engaging investors and partners at various international forums, focusing on transparency and policy consistency.

“We’ve gone out, told our story, we’ve made promises, ensured that we stuck to those promises, and we are as transparent as we could in order to engender positive market sentiment and have economic actors believe in the framework in which we were setting out for the future of our foreign exchange system,” he said. “I believe all those have paid off.”

However, Cardoso warned that the outlook remains vulnerable to both domestic and external risks. While acknowledging that no one “has a crystal ball” on global developments, he noted that geopolitical tensions and volatility in oil prices could affect Nigeria’s external position.

“Now, of course, there will always be risks to any outlook. We cannot underestimate the potential global shocks that could come our way,” he said. “We can only project how oil prices play out.”

The CBN governor highlighted domestic fiscal risks, especially ahead of future election cycles, cautioning that excessive government spending in such periods could undermine recent gains in the foreign exchange market.

“Importantly, pre-election spending, if not properly contained, can destabilise the stability we’ve accomplished,” he warned.

Cardoso also flagged the need to keep fiscal deficits in check, noting that the federal authorities are reviewing spending plans for the new year. He stressed that the central bank, for its part, would prioritise consistency and avoid abrupt policy reversals.

“From our side, we’ve got to make sure that we are consistent with our policy formulation, and there are no policy somersaults,” he said.

Despite the risks, the CBN governor expressed confidence in the medium-term trajectory of the economy, pointing to ongoing efforts to diversify Nigeria’s export base and strengthen the foundations of the foreign exchange system.

“My view is that as long as all things being equal, I believe the trajectory we are on is one that is certain, that there’s every effort being made to diversify our base,” Cardoso said.