{"id":623112,"date":"2026-09-21T18:50:31","date_gmt":"2026-09-21T18:50:31","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/623112\/"},"modified":"2026-09-21T18:50:31","modified_gmt":"2026-09-21T18:50:31","slug":"us-first-rate-hike-since-2023-puts-nigerias-foreign-capital-under-pressure-aere","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/623112\/","title":{"rendered":"US first rate hike since 2023 puts Nigeria\u2019s foreign capital under pressure – AERE"},"content":{"rendered":"


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The latest interest rate increase by the United States Federal Reserve could put pressure on Nigeria\u2019s ability to attract and retain foreign capital, while increasing the need for stronger fiscal discipline, the Alliance for Economic Research and Ethics (AERE) has said.\n<\/p>\n

The Federal Open Market Committee (FOMC) on September 16 raised the federal funds target range by 25 basis points to 3.75\u20134.00 percent, its first increase since 2023. The Fed said the move was aimed at supporting a return of inflation to its two percent target.\n<\/p>\n

In an analysis by Dele Oye, chairman of AERE, the rate increase represents a warning for Nigeria as higher US yields could make dollar-denominated assets more attractive to global investors and raise the threshold for emerging markets seeking foreign capital.\n<\/p>\n

Oye said Nigeria would need to demonstrate that its economic reforms were credible, predictable and capable of generating sustainable returns for investors.\n<\/p>\n

\u201cThe Federal Reserve\u2019s increase is a yellow light for Nigeria, not a fire alarm. It means dollars may become more expensive, global investors may become more selective, and Nigeria will have to prove again that its reforms are real, predictable, and useful beyond the trading screen,\u201d he said.<\/p>\n

Read also: Nigeria\u2019s cautious rate cut signals path to sustainable growth<\/a>\n<\/p>\n

The analysis noted that Nigeria currently has stronger external buffers than in previous years, with gross external reserves reaching $54.61 billion as of September 14, 2026.\n<\/p>\n

The reserve position represents a $12.76 billion, or 30.5 percent, increase from $41.84 billion recorded a year earlier.\n<\/p>\n

Nigeria\u2019s inflation rate has also continued to moderate, falling to 15.39 percent in August from 23.14 percent a year earlier, according to the National Bureau of Statistics (NBS).<\/p>\n

However, Oye cautioned that the improvement in reserves and inflation should not be mistaken for a complete solution to Nigeria\u2019s structural economic challenges.<\/p>\n

\u201cReserves are a seatbelt, not a steering wheel. They can protect the economy during a shock; they cannot drive growth, create jobs, or make tomatoes cheaper by themselves,\u201d he said.\n<\/p>\n

The composition of foreign investment remains a key vulnerability, according to the analysis.\n<\/p>\n

NBS data showed that Nigeria attracted $10.37 billion in capital importation in the first quarter of 2026, representing an 83.83 percent increase from $5.64 billion in the same period of 2025.\n<\/p>\n

However, portfolio investment accounted for $9.86 billion, or 95.09 percent, of the inflows, while foreign direct investment stood at only $135.08 million, representing 1.30 percent.\n<\/p>\n

Oye said the dominance of portfolio investment meant that a significant proportion of the capital entering Nigeria could be more sensitive to changes in global interest rates, exchange-rate expectations and investor sentiment.<\/p>\n

\u201cPortfolio money is useful, but it travels light. It does not buy a factory, train apprentices, or wait patiently for a port to clear cargo,\u201d he said.\n<\/p>\n

Read also: Global stock markets soar in reaction to US rate cuts<\/a>\n<\/p>\n

He said Nigeria needed to focus on attracting capital capable of supporting productive investment, exports, infrastructure and job creation rather than relying heavily on short-term financial inflows.\n<\/p>\n

The analysis also warned that the differential between Nigeria\u2019s interest rate and the US rate should not be viewed as sufficient to guarantee sustained capital inflows.\n<\/p>\n

According to Oye, investors also consider exchange-rate risks, liquidity conditions, policy consistency, the credibility of public finances and the ease of repatriating funds when assessing emerging markets.<\/p>\n

The analysis further identified Nigeria\u2019s fiscal position as another area requiring attention amid tighter global financial conditions.\n<\/p>\n

The 2026 budget provides for total expenditure of N68.32 trillion, including about N15.8 trillion for debt service. <\/p>\n

Oye said the size of debt-service obligations meant that Nigeria needed to improve the efficiency of public spending and reduce the cost of borrowing.\n<\/p>\n

\u201cThe answer is not to celebrate borrowing more elegantly. It is to borrow less expensively, spend more transparently, and make public money work harder,\u201d he said.\n<\/p>\n

He called for greater emphasis on productive investments in power, logistics, storage, education, healthcare and export infrastructure, arguing that such spending could strengthen the economy\u2019s capacity to generate future revenues.<\/p>\n

Oil receipts should strengthen buffers\n<\/p>\n

Oye also said Nigeria should use favourable oil prices to strengthen its fiscal and external position rather than expand recurrent consumption.\n<\/p>\n

Read also: US hikes rates as Africa\u2019s largest economies face MPR decisions this week<\/a>\n<\/p>\n

He noted that the 2026 budget was based on a benchmark oil price of $64.85 per barrel, while Brent crude futures were trading substantially above that level in September.\n<\/p>\n

He said stronger oil earnings could provide an opportunity to rebuild fiscal buffers, support reserves and finance productive infrastructure, but warned against treating temporary oil-price gains as permanent revenue.<\/p>\n

The analysis also urged the government to address oil production constraints and losses so that higher crude prices translate into stronger fiscal and export earnings.\n<\/p>\n

CBN faces balancing act\n<\/p>\n

The report said the Central Bank of Nigeria would also need to balance inflation, foreign exchange liquidity, reserves and credit conditions as global monetary conditions tighten.\n<\/p>\n

Nigeria\u2019s Monetary Policy Rate currently stands at 26.5 percent, following reductions from 27 percent in September 2025 and to 26.5 percent in February 2026.\n<\/p>\n

Oye said monetary policy should not focus solely on defending a particular exchange-rate level but should create conditions that allow businesses and households to plan.<\/p>\n

He said manufacturers, farmers and exporters require greater certainty over interest rates, access to foreign exchange and the broader policy environment.\n<\/p>\n

Tax reform and investor confidence\n<\/p>\n

The analysis also linked the implementation of the Nigeria Tax Act 2025 to Nigeria\u2019s ability to attract productive investment.\n<\/p>\n

The legislation, which took effect on January 1, 2026, should, according to Oye, make taxation simpler and more predictable while widening compliance.\n<\/p>\n

\u201cTax reform should widen compliance and reduce arbitrary friction; it should not turn productive firms into a national ATM with no withdrawal limit,\u201d he said.<\/p>\n

Oye said Nigeria\u2019s policy response to tighter global financial conditions should therefore combine prudent reserve management, stronger fiscal discipline, improved investment conditions and more efficient public spending.\n<\/p>\n

He also called for timely publication of budget implementation reports, project appraisals and debt information to strengthen investor confidence and public accountability.\n<\/p>\n

\u201cJudge reform by life outside the spreadsheet. If reserves rise while food, transport, and jobs remain out of reach, macroeconomic stability has not yet completed its assignment,\u201d he said.\n<\/p>\n

The AERE analysis added that the Fed\u2019s rate decision should be viewed as a test of Nigeria\u2019s ability to convert recent improvements in macroeconomic stability into productive and sustainable economic growth.\n<\/p>\n


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