The International Monetary Fund (IMF) has stated that the Nigerian naira remains significantly undervalued against the United States dollar despite recent improvements linked to the Federal Government’s foreign exchange reforms.
In its latest Article IV consultation report on Nigeria, the IMF noted that although the naira has regained some strength in the foreign exchange market, its current value remains below levels supported by the country's economic fundamentals.
According to the report, Nigeria’s Real Effective Exchange Rate (REER), which measures the value of a currency against those of major trading partners while adjusting for inflation, appreciated by 32 per cent in 2025. During the same period, the Nominal Effective Exchange Rate (NEER) depreciated by 5.2 per cent.
The IMF said its EBA-lite REER model indicates a REER gap of negative 25.6 per cent, suggesting that the naira is still undervalued. Based on the institution’s assessment, the currency should have traded around ₦1,142 to the dollar using the end-of-2025 exchange rate and approximately ₦1,131 to the dollar based on the annual average rate. By comparison, the official exchange rate stood at ₦1,356.27 per dollar as of Monday.
The report also highlighted that the official exchange rate strengthened from ₦1,535 per dollar at the end of 2024 to ₦1,435 per dollar by the end of 2025, representing an appreciation of about 6.5 per cent. However, on an annual average basis, the naira weakened from ₦1,479 per dollar in 2024 to ₦1,520 per dollar in 2025.
The IMF’s assessment comes nearly three years after the introduction of major foreign exchange reforms by the Tinubu administration, including exchange-rate unification and a more market-driven system. The fund advised the Central Bank of Nigeria to maintain exchange-rate flexibility and moderate the pace of reserve accumulation, adding that greater two-way movement in the FX market, alongside fiscal and structural reforms and support for non-oil sectors, would help reduce the naira’s undervaluation and strengthen Nigeria’s external position over time.
Elijah Adeyemi
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