Naira projected to hit N1,804/$1 in 2025 amid FX volatility, experts warn

The Nigerian Naira is expected to depreciate to N1,804 per dollar at the official exchange rate by 2025, according to a new report by Afrinvest titled “Beyond The Rhetorics: Transforming Reforms to Tangibles.”

This forecast highlights the persistent foreign exchange (FX) volatility and the Central Bank of Nigeria’s (CBN) ongoing struggles to meet the country’s FX demands. Experts caution that unless structural reforms are implemented, the Naira will continue to face downward pressure.

Afrinvest’s analysis suggests that the CBN will face difficulties in sustaining market demand for foreign exchange, primarily due to its reliance on inflows from inorganic sources, such as loans and external grants, many of which come with strict conditions that limit their usability.

“We anticipate that exchange rate volatility would persist in 2025, albeit at a modest pace,” the report stated. “Our prognosis is based on the belief that the CBN would be constrained from adequately meeting market demand on a sustained basis, as the recent forex reserves increase was largely driven by these inorganic sources.”

This grim forecast stands in stark contrast to the N1,500 per dollar benchmark proposed in the 2025 budget, which is currently under review by the National Assembly.

Despite this projection, the Naira showed signs of resilience in the last week. As of Friday, the Naira gained at the official market, closing at N1,534 per dollar, while trading at N1,650 on the parallel market.

While the Naira has exhibited some short-term strength, analysts warn that these gains may not be sustainable in the face of broader economic challenges.

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Economist Dr. Olusegun Ajayi believes that the Afrinvest projection highlights underlying issues within Nigeria’s forex management system.

“The anticipated depreciation of the Naira to N1,804 per dollar underscores the lack of structural reforms in Nigeria’s forex policy. Unless the CBN diversifies its forex sources and strengthens reserves through organic means, such as boosting export revenue, the currency will remain highly vulnerable to external shocks,” Ajayi explained.

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Financial analyst Ahmed Usman, who contributed to the Afrinvest report, pointed out the mismatch between the government’s optimistic forex projections and the reality of the market forces.

“Setting a budgetary benchmark of N1,500 per dollar is more aspirational than practical,” Usman said. “If the CBN cannot meet forex demands sustainably, market realities will drive the Naira closer to Afrinvest’s forecast.”

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Afrinvest’s report also highlighted that recent gains in forex reserves were largely driven by inflows from sources with stringent conditions, such as loans and external grants. This, experts argue, is not a sustainable path for stabilizing the Naira.

“This approach is not sustainable in the long term,” said Professor Maryam Ibrahim, a financial policy expert. “To stabilize the Naira, Nigeria must focus on increasing export revenues and reducing reliance on imports, especially for essential goods.”

With 2025 fast approaching, Nigeria faces significant challenges in managing its foreign exchange market. The Afrinvest report serves as a critical reminder for policymakers to address these structural weaknesses.

While the introduction of the Electronic Foreign Exchange Matching System (EFEMS) has provided some stability in the short term, analysts agree that achieving long-term resilience for the Naira will require bold reforms and a shift away from reliance on external funding sources.

The report calls for a comprehensive policy framework aimed at reducing Nigeria’s dependency on foreign inflows and enhancing the capacity to weather future economic challenges.