Naira still trading 25% below value – IMF

The International Monetary Fund (IMF) has said that the naira remains significantly undervalued despite recent gains against the United States dollar following Nigeria’s foreign exchange reforms.

In its latest Article IV consultation report on Nigeria, the Washington-based lender stated that its Real Effective Exchange Rate (REER) assessment showed the local currency was still trading below levels supported by the country’s economic fundamentals.

The REER is a measure of a currency’s value against those of major trading partners after adjusting for inflation.

According to the IMF, Nigeria’s REER appreciated by 32 percent in 2025, even as the nominal effective exchange rate (NEER) weakened by 5.2 percent during the same period.

“Despite the REER appreciation that has already taken place in 2025, the EBA-lite REER model indicates a REER gap of -25.6 percent,” the fund said.

The report noted that the official exchange rate strengthened from N1,535/$ at the end of 2024 to N1,435/$ by the close of 2025, representing an appreciation of about 6.5 percent.

However, on an annual average basis, the naira weakened from N1,479/$ in 2024 to N1,520/$ in 2025, amounting to a depreciation of 2.8 percent.

Based on the IMF’s assessment, the naira should have traded around N1,142.04/$ using the end-of-2025 exchange rate benchmark, or N1,130.88/$ when calculated using the average exchange rate for the year.

The assessment contrasts with the official foreign exchange rate of N1,356.27/$ recorded on Monday.

The IMF’s latest position comes nearly three years after President Bola Tinubu’s administration embarked on sweeping foreign exchange reforms in June 2023. The reforms included the removal of the multiple exchange-rate regime and the adoption of a more market-driven currency system.

While the policy changes initially triggered a sharp depreciation of the naira, authorities argued they were necessary to attract foreign investment, improve transparency and boost liquidity in the foreign exchange market.

The IMF said continued exchange rate flexibility would be crucial to correcting the naira’s undervaluation and improving Nigeria’s external balance over time.

The fund also advised the Central Bank of Nigeria (CBN) to moderate the pace of foreign reserve accumulation while sustaining a more flexible exchange rate regime.

“Given the assessed REER undervaluation, slowing the pace of reserve accumulation and continuing to allow 2-way movement of the naira exchange rate combined with strengthening FX market functioning and advancing and supporting fiscal and structural reforms, particularly those that can improve non-oil/gas imports, would help close the gap,” the fund said.

According to the IMF, ongoing reforms aimed at improving foreign exchange market efficiency, strengthening fiscal management and boosting non-oil sectors of the economy would help narrow the exchange rate misalignment and reinforce Nigeria’s external position.

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