By Niyi jacobs
The Naira has endured years of volatility, driven by fluctuating oil prices, an over-reliance on imports, and inconsistent policy measures. However, optimism for a stable Naira in 2025 is rising, with various reports projecting reduced currency fluctuations. Research by Bayo Adedipe and Associates predicts the Naira will settle at N1,574/$1 by the end of the year, a slight adjustment from the N1,553/$1 recorded in 2024. Similarly, Nairalytics, the research arm of Nairametrics, projects the Naira’s exchange rate will fluctuate within a narrow band of +5% (appreciation) and -10% (depreciation), signaling relative stability compared to the 40% devaluation experienced in 2024.
This analysis delves into the factors contributing to this potential stability, examines the challenges that could undermine it, and outlines why 2025 could mark a turning point for the Naira.
Drivers of Naira Stability in 2025
1. Introduction of a Transparent Forex Platform
One of the most critical developments bolstering confidence in the Naira is the Central Bank of Nigeria’s (CBN) introduction of a transparent forex trading platform. This system addresses long-standing issues of opacity and multiple exchange rates that plagued Nigeria’s forex market for years.
By streamlining currency transactions and reducing opportunities for arbitrage, the platform has calmed market jitters and aligned the exchange rate more closely with fundamentals. Speculative activities that previously destabilized the currency have diminished, creating a more predictable and efficient market environment.
2. Decline in Import Dependency
Nigeria’s heavy reliance on imported goods, particularly petroleum products, has historically placed immense pressure on the Naira. Between 2022 and 2024, petroleum imports accounted for 39% of total imports, peaking at 40% by Q3 2024. However, this trend is poised to change dramatically in 2025, thanks to the operationalization of domestic refineries, including the Dangote Refinery.
With increased local refining capacity, Nigeria is expected to significantly reduce its import bill for petroleum products. This reduction will ease the demand for foreign exchange, allowing the CBN to allocate reserves more efficiently to other sectors.
Additionally, the government’s efforts to promote local manufacturing and agriculture are expected to yield further reductions in import dependency, strengthening the Naira in the long term.
3. Strengthened Forex Reserves
Starting 2024 at $32.89 billion, Nigeria’s forex reserves climbed to $41 billion by the end of the year. This improvement was driven by a mix of foreign debt inflows, higher crude oil prices, and increased crude production.
Although global oil prices may face downward pressure in 2025, Nigeria’s reserve position remains strong. Rising crude output is expected to offset any potential price declines, ensuring a steady flow of forex earnings.
The government’s plans to re-enter the foreign debt market could further bolster reserves. While borrowing comes with its own risks, the short-term injection of dollars into the economy is likely to support the Naira’s stability.
4. Rising Foreign Direct Investment (FDI)
Foreign direct investment (FDI) is expected to play a pivotal role in stabilizing the Naira in 2025. Over the past year, the Nigerian government has intensified efforts to attract foreign investors through bilateral agreements, policy reforms, and targeted incentives.
CBN data indicates that forex remittances reached $600 million monthly by mid-2024, and initiatives like the non-resident Bank Verification Number (BVN) scheme are expected to drive this figure higher in 2025. These inflows provide a much-needed cushion for the forex market, reducing pressure on the Naira.
Furthermore, the anticipated decline in global interest rates will make Nigeria’s high-yield investment instruments more attractive to foreign portfolio investors, injecting additional liquidity into the system.
5. Improved Balance of Payments
Nigeria’s balance of payments showed significant improvement in 2024, rising to over $6 billion by Q3. This progress was driven by a healthier external account position, boosted by growing exports and declining imports.
In 2025, this trend is expected to continue, as global interest rate cuts and rising crude production enhance Nigeria’s external earnings. The government’s efforts to diversify export revenue sources, particularly in agriculture and manufacturing, will also contribute to a more favorable balance of payments, further stabilizing the Naira.
6. Clampdown on Speculative Activities
Speculative activities, particularly those linked to cryptocurrency transactions, were a major source of forex volatility in early 2024. However, regulatory measures by the CBN curtailed these activities in the second half of the year, stabilizing the exchange rate.
With stricter oversight expected to continue in 2025, the likelihood of speculative-driven shocks to the forex market has significantly diminished. This regulatory vigilance will play a critical role in maintaining stability throughout the year.
A stable exchange rate is essential for fostering economic growth and investor confidence. It reduces uncertainty for businesses, encourages foreign investment, and lowers inflationary pressures by stabilizing import costs. For Nigerian households, a stable Naira translates to more predictable purchasing power, particularly for imported goods and services.
In 2025, these benefits are likely to materialize as the Naira maintains a more predictable trajectory, paving the way for broader economic recovery.
Challenges to Naira Stability in 2025
While the outlook for the Naira is optimistic, several challenges could derail stability:
1. Oil Price Volatility
Nigeria remains heavily dependent on oil revenues, making its forex reserves vulnerable to fluctuations in global oil prices. Although crude production is expected to rise, even minor price shocks could strain reserves and weaken the Naira.
2. Execution Risks for Refinery Operations
The success of domestic refinery operations, a cornerstone of Nigeria’s reduced import dependency, hinges on efficient execution. Delays, operational inefficiencies, or technical setbacks could prolong the country’s reliance on imported petroleum products, undermining gains in forex demand reduction.
3. Rising Debt Obligations
While foreign debt inflows bolster forex reserves in the short term, they also increase Nigeria’s external debt burden. Servicing this debt could place additional pressure on government finances, reducing the funds available for other critical investments.
4. External Economic Factors
Global economic conditions, including interest rate trends, geopolitical tensions, and currency dynamics in major trading partners, could have spillover effects on Nigeria’s forex market. A stronger U.S. dollar, for instance, could dampen the Naira’s stability.
To ensure the Naira remains stable in 2025 and beyond, policymakers must prioritize the following:
1. Diversify Export Revenue Sources: Expanding non-oil exports in sectors like agriculture, manufacturing, and technology will reduce reliance on volatile oil earnings.
2. Promote Local Production: Continued investment in local industries will lower import dependency
