The International Monetary Fund (IMF) has indicated that the Nigerian naira is still 25.6% undervalued, even with its recent improvements against the US dollar due to the Federal Government’s foreign exchange reforms.
In its recent Article IV consultation report on Nigeria, the IMF observed that although the naira has made some progress, it continues to trade below what is supported by the nation’s economic fundamentals.
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The report highlights that Nigeria’s Real Effective Exchange Rate (REER)—which assesses a currency’s value against its key trading partners after factoring in inflation—appreciated by 32% in 2025. Conversely, the Nominal Effective Exchange Rate (NEER) declined by 5.2% during the same timeframe.
The IMF indicated that despite the REER appreciation in 2025, the EBA-lite REER model shows a REER gap of -25.6%.
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According to the IMF, the naira should be valued around N1,142/$ based on the end-of-2025 exchange rate, and approximately N1,131/$ when averaged for the year. The official exchange rate, however, was reported at N1,356.27/$ as of Monday.
The fund also noted that the official exchange rate improved from N1,535/$ at the end of 2024 to N1,435/$ at the close of 2025, marking a 6.5% increase. Yet, on an annual average, the naira depreciated from N1,479/$ in 2024 to N1,520/$ in 2025.
This assessment comes almost three years after the Tinubu administration rolled out significant FX reforms, including the unification of exchange rates and a transition to a more market-driven system designed to enhance liquidity and attract foreign investment.
The IMF encouraged the Central Bank of Nigeria (CBN) to ensure flexibility in exchange rates and to moderate the accumulation of foreign reserves.
It suggested that allowing more movement in the FX market, alongside fiscal and structural reforms and support for non-oil sectors, would aid in reducing the naira’s undervaluation and enhance Nigeria’s external position over time.
