The Nigerian naira is showing unusual strength in the unofficial market this year. In early Tuesday trading in Nigeria’s business hub, the naira was sold at N1,520 per US dollar. Arbiterz reported on Friday, that the naira had appreciated to N1570 at the black market, with a single-day gain of N20, and that the official and parallel fx markets are getting closer to equilibrium. This improvement comes amid better market fundamentals and ongoing reforms by the Central Bank of Nigeria (CBN).
Positive Factors Supporting the Naira
The Nigerian Naira’s outlook for 2025 is influenced by several positive factors, primarily Nigeria’s Eurobond issuance, which has provided a much-needed influx of foreign capital. This has helped to bolster the country’s foreign exchange reserves and provide greater liquidity in the forex market, supporting the Naira against external shocks. The success of the Eurobond issue signals confidence in Nigeria’s long-term economic prospects, helping to stabilize the currency in the short term. As foreign investors’ perception of risk decline, additional capital inflows are expected to support the Naira’s value. In addition, some analysts have forecast that the Naira could stabilize and potentially improve to around ₦1,600/$ by December 2025, largely due to these foreign capital inflows and the relative stability brought on by Eurobond proceeds and forex market reforms.
Fiscal Risks and Rising Expenditure
However, the Naira’s value remains at risk due to Nigeria’s fiscal challenges. The country’s rising government expenditure, particularly debt servicing costs, poses a significant downside threat. A growing portion of Nigeria’s revenue is allocated to service mounting debt, which reduces the capacity to invest in critical sectors such as infrastructure or economic diversification. This fiscal imbalance has raised concerns about the sustainability of the Naira’s recent gains. Furthermore, the government’s budgetary pressures could lead to further depreciation, with projections suggesting that the Naira could reach ₦1,700/$ if these fiscal issues are not addressed. Such a level would be a substantial setback, driven by the lack of fiscal discipline and the deepening fragmentation in economic policy. The inability to curb rising expenditure and debt servicing costs could undermine investor confidence and prevent the Naira from achieving lasting stability.
Outlook for the Naira in 2025
Looking ahead to 2025, the Naira’s stability remains hostage to internal and external factors. On the one hand, foreign capital inflows, including Eurobonds, offer short-term support, potentially helping the Naira stabilise ₦1,600/$ by December 2025. However, this outlook is contingent upon the Nigerian government effectively managing its fiscal situation. Without significant structural reforms to address fiscal inefficiencies and reduce dependence on high cost external financing, the Naira faces a real risk of depreciation if not in 2025, then in 2026 or later.
If rising government expenditure continues unchecked, combined with policy fragmentation i.e. the divergence between tight monetary policy and loose fiscal policy- and the ongoing challenges of managing public debt, the Naira could experience renewed weakness, possibly dropping to ₦1,700/$ or lower. Therefore, while short-term capital inflows may offer some relief, the long-term stability of the Naira will require urgent fiscal reform and a more coherent economic policy approach.
