The International Monetary Fund (IMF) has assessed that the Nigerian naira is still undervalued by approximately 25.6%, even after notable recovery following the country’s foreign exchange reforms.
In its latest Article IV consultation report, the IMF noted that the Real Effective Exchange Rate (REER) model indicates the naira is trading below levels justified by Nigeria’s economic fundamentals.
The REER compares a currency’s value against those of major trading partners, adjusted for inflation differences. While the naira’s REER appreciated by 32% in 2025, the nominal effective exchange rate depreciated by 5.2% during the same period.
Post-Reform Exchange Rate Movement
Following the unification of exchange rate windows in 2023, the official rate strengthened from N1,535 per dollar at the end of 2024 to N1,435 by the end of 2025 a gain of about 6.5%. However, on an annual average basis, the naira still weakened from N1,479 to N1,520 per dollar. As of Monday, the official rate stood at N1,356.27 per dollar.
Policy Recommendations
The IMF emphasised that maintaining exchange rate flexibility remains essential for correcting the naira’s undervaluation and strengthening Nigeria’s external position over time.
The Fund specifically advised the Central Bank of Nigeria (CBN) to slow the pace of foreign reserve accumulation and allow more two-way movement in the foreign exchange market. These measures, alongside continued improvements in FX market operations and deeper fiscal and structural reforms, would help address the current valuation gap.
The assessment comes three years after President Bola Tinubu’s administration initiated bold FX reforms aimed at attracting foreign capital and improving market liquidity. While the reforms initially triggered sharp depreciation, they have since contributed to greater transparency and stability in the foreign exchange system.
The IMF’s latest recommendations provide valuable guidance for Nigeria’s monetary authorities as they seek to balance currency stability, reserve management, and sustainable economic growth in an evolving global environment.
