Nigeria’s currency is expected to weaken further in the coming year despite recent signs of stabilization, as the African Development Bank (AfDB) projects that the naira will depreciate by at least 6 percent between 2025 and 2026.
The forecast, published in the African Economic Outlook 2025, reflects growing concerns about heightened global financial market volatility and its spillover effects on African currencies.
The projection comes at a time when Nigeria’s central bank is expressing renewed confidence in the country’s economic direction. Just days before the AfDB report was published, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso announced that volatility in Nigeria’s foreign exchange (FX) market had dropped below 0.5 percent, the lowest level in recent years. According to him, this marked improvement was the result of a mix of fiscal and monetary reforms aimed at restoring macroeconomic stability and investor confidence.
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Cardoso made the announcement during a press briefing in Abuja following the 300th meeting of the Monetary Policy Committee (MPC), describing the drop in volatility as a “clear indication that Nigeria is back on a sustainable path.” He cited growing foreign reserves, enhanced market transparency, and a reformed exchange rate regime as factors contributing to the newfound market confidence.
But the AfDB paints a more cautionary picture, warning that Nigeria’s relative calm in FX markets may be short-lived unless structural economic challenges are addressed.
The AfDB report forecasts that at least 21 African countries, including Nigeria, Egypt, Ethiopia, Ghana, Libya, Rwanda, Zambia, and Zimbabwe, will see their currencies depreciate by 6 percent or more over the course of 2025. In Nigeria’s case, the naira is expected to come under pressure from a combination of external market uncertainty, fragile export earnings, and domestic structural weaknesses.
The Bank explained that the projected depreciation is not exclusive to Nigeria but reflects broader continental trends. Across the region, economies dependent on commodity exports are facing growing fiscal and balance of payment pressures, worsened by global market instability, rising interest rates in advanced economies, and fluctuating capital flows.
In contrast, the report identifies Kenya, Morocco, and countries in the CFA franc zone as potential gainers. Their currencies are projected to appreciate by more than 3 percent against the U.S. dollar, buoyed by better fundamentals, diversified exports, and relatively stronger investor confidence.
Looking back at 2023, the AfDB notes that 28 African currencies depreciated, but 17 of them either stabilized or started recovering in 2024. The South African rand, for example, weakened by 11.3 percent in 2023 but appreciated slightly by 0.7 percent year-on-year. Similarly, the Kenyan shilling reversed a 15.4 percent depreciation in 2023 with a 3.1 percent rebound in 2024, aided by investor inflows following a successful Eurobond issue.
Kenya’s recovery was underpinned by a strategic buyback of a $2 billion Eurobond set to mature in June 2024, financed by a new $1.5 billion issuance. That transaction restored investor confidence and triggered a 121 percent increase in portfolio investment inflows, offsetting the previous capital flight.
On the other hand, currencies in Guinea, Mauritania, and Seychelles continued to face downward pressure, weighed down by persistent macroeconomic instability and low investor confidence.
The report also observed that currencies pegged to the euro — such as the CFA franc, Cabo Verdean escudo, São Tomé and Príncipe dobra, and Comoros franc — remained relatively stable, largely benefiting from the euro’s improved performance against the dollar in 2024.
The stark contrast between the CBN’s optimism and the AfDB’s cautionary stance underscores the dual realities of Nigeria’s FX market. On one hand, Nigeria has implemented wide-ranging monetary reforms, including unifying its exchange rates and restricting excess naira liquidity through higher interest rates and open market operations. On the other hand, structural weaknesses — such as weak non-oil export capacity, heavy import dependence, and low dollar inflows — continue to pose risks to exchange rate stability.
Despite the naira showing signs of stabilization in the first half of 2025, the AfDB maintains that external shocks or domestic fiscal slippage could easily trigger another round of pressure on the currency. It warned that overreliance on foreign portfolio flows and fragile commodity earnings could reverse recent gains unless Nigeria deepens structural reforms.
To counter these risks, the AfDB urges African governments, including Nigeria, to strengthen their macroeconomic fundamentals, particularly by curbing inflation and reducing fiscal deficits. It calls for enhanced export diversification, with a focus on value-added production, and recommends the establishment of credible and transparent exchange rate regimes that reflect actual market conditions. It also emphasizes the need to deepen regional trade linkages and adopt platforms like the Pan-African Payment and Settlement System (PAPSS), which can reduce the continent’s heavy reliance on the U.S. dollar in intra-African trade.
The AfDB noted that while Nigeria is already making progress in some of these areas, including its recent directive mandating banks to begin using PAPSS for cross-border transactions under the African Continental Free Trade Area (AfCFTA), the country still lags behind in export competitiveness and policy coordination.
Cardoso has reiterated that the apex bank would stay the course of reforms and push ahead with its agenda of exchange rate transparency, inflation targeting, and strategic reserve management. He also pointed to the growing collaboration between monetary and fiscal authorities, which he says is now more aligned than ever.
The CBN believes that the mix of exchange rate reforms, tighter monetary policy, and improved FX market transparency will eventually support medium-term currency stability and reduce Nigeria’s vulnerability to external shocks.
However, the major challenge is no longer just about short-term FX stability — it’s about sustaining reforms long enough to rebuild economic buffers, boost exports, and insulate the economy from the shocks that have historically battered the naira.