Despite recent FX reforms and some gains in the foreign exchange market, the IMF says the naira still has a significant gap to close.
The International Monetary Fund (IMF) has said the naira is still undervalued by about 25.6 percent, even after gaining some strength against the US dollar following recent foreign exchange reforms in Nigeria.
A currency is considered undervalued when it trades below the level that underlying economic conditions would normally justify.
In its latest Article IV review of Nigeria, the Washington-based lender said its Real Effective Exchange Rate (REER) assessment suggests the naira is still below the value supported by economic fundamentals.
The REER is a measure that compares a currency against those of major trading partners, while adjusting for differences in inflation.
According to the IMF, Nigeria’s REER strengthened by 32 percent in 2025, even though the nominal effective exchange rate (NEER) weakened by 5.2 percent over 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 stated.
The report noted that Nigeria’s official exchange rate improved from N1,535/$ at the end of 2024 to N1,435/$ by the end of 2025, a rise of roughly 6.5 percent.
However, on an annual average basis, the naira still lost value, weakening from N1,479/$ in 2024 to N1,520/$ in 2025 — a depreciation of about 2.8 percent.
Based on the IMF’s calculations, the naira should be valued at around N1,142.04/$ at the end of 2025, or N1,130.88/$ on an average basis for the year. By contrast, the official rate stood at N1,356.27/$ as of Monday.
The assessment comes nearly three years after President Bola Tinubu’s administration began sweeping foreign exchange reforms in June 2023, which unified Nigeria’s multiple exchange-rate windows and allowed greater flexibility in currency trading.
Although the reforms initially triggered a sharp depreciation of the naira, they were designed to improve transparency, attract foreign investment, and boost liquidity in the FX market.
The IMF said continued exchange rate flexibility would remain key to correcting the naira’s misalignment and improving Nigeria’s external position over time.
It also advised the Central Bank of Nigeria (CBN) to moderate the pace of foreign reserve accumulation while allowing greater two-way movement in the foreign exchange market.
“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.
The IMF further stressed that sustained reforms aimed at improving FX market efficiency, strengthening fiscal discipline, and expanding non-oil sectors would help reduce exchange rate misalignment and support external stability.
