Using Monetary Reform as a Foundation for Long-Term Growth

At the 60th Annual Bankers’ Dinner, Central Bank Governor Olayemi Cardoso made a speech that was both retrospective and forward-looking, a comprehensive overview of Nigeria’s reform trajectory and its transition into a sustainable economic phase. The speech was more than just rhetoric; it told a thorough story of Nigeria’s transition from crisis to stability and how reforms are now creating the groundwork for inclusive prosperity and resilience.

Cardoso started by placing the historical event. “We are gathered here tonight at a pivotal moment for our country, one characterized by deep institutional rebuilding, domestic recalibration, and global uncertainty.” This framing was deliberate. It reminded stakeholders that Nigeria’s economic story cannot be isolated from the global backdrop of geopolitical concerns, supply-chain realignments, and tighter external financing conditions. Yet, against these headwinds, Nigeria’s reforms have begun to bear fruit, putting the country as one of Africa’s leading examples of disciplined economic management.

INFLATION TARGETING

The first pillar of reform Cardoso stressed was inflation moderation. Nigeria had been locked in a cycle of double-digit inflation for decades, with food costs hurting individuals and liquidity conditions destabilising enterprises. By November 2024, inflation had climbed to 34.6 percent, a figure that endangered the entire fabric of economic planning. Cardoso remembers this era starkly: “High inflation had become normalised, stuck in double digits for most of the last 35 years and risen to 34.6 per cent as of November 2024. Food prices were crushing homes. Conditions for liquidity were erratic. There was an existential threat to many companies. Against this environment, the Central Bank’s return to traditional monetary policy was decisive. Food inflation fell to 13.12 percent by October 2025, when inflation had more than halved to 16.05 percent. This was not serendipity but the consequence of purposeful measures: stopping monetary financing of fiscal deficits, strengthening data analytics, and improving communication. Cardoso emphasized the importance of this accomplishment by saying, “Sustainable growth is based on price stability.” We are making progress in switching to an inflation-targeting framework.

FX CHANGES

Equally transformational has been the reform of the foreign currency market. For years, Nigeria’s FX regime was plagued by opacity, distortions, and rent-seeking possibilities. The backlog of unmet obligations approached $7 billion, while the disparity between official and parallel market rates expanded to almost 60 percent. Cardoso put it simply: “The foreign exchange market was in paralysis.” A backlog of nearly $7 billion in unmet FX obligations threatened market integrity. The margin between official and parallel market rates had blown out to more than 60 per cent, creating distortions and rent-seeking opportunities.” Under his direction, the Electronic Foreign Exchange Management System (EFEMS) was implemented, the exchange-rate windows were unified, and the backlog was cleared, all of which restored confidence. The naira now trades within a limited, stable band, with the spread between official and illicit markets decreasing to under 2 percent. Investor confidence has risen, with foreign capital inflows exceeding $20.98 billion in the first ten months of 2025, a 428 percent increase compared to 2023. “Together, these reforms have reduced opacity and manipulation, and restored discipline to the market,” Cardoso said, encapsulating the essence of this turnaround. The naira now trades within a small, consistent range.”

STRENGHTENED EXTERNAL RESERVES

The strengthening of Nigeria’s external buffers further validates the reform trajectory. Foreign reserves surged to $46.7 billion by mid-November 2025, the most in nearly seven years, giving over 10 months of import cover. The current account balance rose by 85 percent to $5.28 billion in Q2 2025. Importantly, these reserves are being rebuilt organically, not through borrowing, but by enhanced market functioning, stronger non-oil exports, and solid capital inflows. Cardoso highlighted this point: “What is most important here is that our FX reserves are being rebuilt organically, not by borrowing, but through improved market functioning, stronger non-oil exports, and robust capital inflows.” This indicates a structural change in Nigeria’s external sector, strengthening resilience to shocks from around the world and lowering reliance on oil.

Reforms in banking

Reform has also focused on the financial industry. Stress tests affirm its robustness, and recapitalisation is firmly on track. As the March 2026 deadline draws near, 27 banks have raised money through rights issues and public offers, and 16 of them have already reached or surpassed new benchmarks. Cardoso noted: “Several banks have already met the new capital thresholds, while others are advancing steadily and are well positioned to comfortably meet the March 31, 2026 deadline.” Beyond figures, the Central Bank is overhauling the credit-risk framework to compel tighter governance and responsibility, intent to break the boom-and-bust cycle of past recapitalisation initiatives. Microfinance lending expanded by almost 14 percent in 2025, and digital-credit products touched more than 1.2 million small companies. In order to ensure that reforms result in opportunities for smaller businesses and households, this emphasis on MSMEs reflects a larger commitment to inclusive growth.

Digital banking and payment-system modernisation have expedited Nigeria’s transition. More than 12 million contactless payment cards are currently in circulation, and fintech use is deepening. Nigeria stands among Africa’s most advanced digital payments markets, with eight of the continent’s nine unicorns originating from the country. “Supported by these measures, Nigeria stands among Africa’s most advanced digital payments markets, with a dynamic fintech ecosystem that has produced eight of the continent’s nine unicorns,” Cardoso said, highlighting this accomplishment. The Central Bank strengthened agent-banking regulations, increased interoperability among switching providers, and extended its Payment System Vision roadmap to 2028. By striking a balance between innovation and stability, these measures safeguard consumers and promote the expansion of fintech. “Innovation must proceed responsibly, anchored in consumer protection and financial stability,” says Cardoso, emphasizing the importance of responsible innovation.

UNLOCK NEW POTENTIAL BY LEAVING THE FATF GREY LIST

Nigeria’s departure from the FATF grey list in 2025 was another milestone. Significant expenses associated with grey-listing included a possible $30 billion decline in capital inflows. Exiting the list signals restored confidence and eases compliance frictions for correspondent banks. Cardoso acknowledged the significance. Cardoso said: “Nigeria’s grey-listing carried a significant cost: countries in this category typically experience a 7.6 per cent of GDP drop in capital inflows in the first year, for Nigeria, that translates to more than $30 billion in potential investment. Exiting the list consequently marks a big restoration of confidence and eases compliance frictions for correspondent banks. The global financial world has welcomed Nigeria’s withdrawal, emphasizing increased access to international finance and smoother cross-border payments.” With assistance from the Central Bank, Ministry of Justice, NFIU, EFCC, and regional partners, this accomplishment is the result of a concerted national effort.

REFORMS SPARK RENEWED CONFIDENCE

Rating agencies have further strengthened confidence on a global scale. Fitch upgraded Nigeria from B- to B (stable), Moody’s improved its rating from Caa1 to B3, and S&P altered its outlook to positive. “The direction is consistent across all three agencies: fundamentals are strengthening, reform credibility is rising, and Nigeria’s risk profile is improving,” Cardoso said. These improvements result in better credit, more investment inflows, and better borrowing rates. Nigeria’s successful $2.35 billion Eurobond issue, collecting $13 billion in orders, illustrates this progress.

There has also been an improvement in fiscal-monetary coordination. One of the main pillars of discipline is the elimination of direct deficit financing. Fiscal authorities have improved the Treasury Single Account, created a National Revenue Agency, and put in place a Revenue Optimization framework. “This stance is unequivocal: there will be no return to the practice of financing fiscal deficits by the Central Bank,” Cardoso stated categorically. This alignment supports Nigeria’s shift to long-term price stability and inflation targeting.

LOOKING AHEAD

Looking ahead, Cardoso identified clear targets for 2026: strengthening the financial system, guaranteeing durable price stability, modernising payments and boosting inclusiveness, stimulating responsible fintech innovation, increasing institutional capacity, and deepening partnerships. “These priorities are practical, measurable, and fully aligned with our mandate to safeguard monetary and financial stability,” he emphasized.

In summary, Cardoso’s address announced Nigeria’s new economic direction in addition to recounting changes. “The foundation for a revitalised Nigeria has been laid, but the journey is far from complete,” he remarked. The advancements made are a result of cooperation, self-control, and the guts to pursue the required changes. It shows that Nigeria can forge a new economic path characterized by opportunity, stability, innovation, and shared wealth.