IMF: Naira remains 25.6% undervalued, fair value at N1,142/$

THE International Monetary Fund (IMF) has said the naira is still undervalued by 25.6 percent, despite gains recorded against the United States dollar since Nigeria embarked on foreign exchange (FX) reforms.

According to the fund, its assessment indicates that the local currency is trading below the level supported by the country’s economic fundamentals. An undervalued currency implies that its exchange rate is weaker than what underlying economic conditions would ordinarily justify.

In its latest Article IV Consultation Report on Nigeria, the Washington-based lender said analysis from its Real Effective Exchange Rate (REER) model showed the naira remained misaligned. The REER measures a country’s currency against those of its major trading partners while adjusting for inflation differentials.

The IMF noted that Nigeria’s REER strengthened by 32 percent in 2025 even though the Nominal Effective Exchange Rate (NEER) weakened by 5.2 percent over the same period.

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“Despite the REER appreciation that has already taken place in 2025, the EBA-lite REER model indicates a REER gap of -25.6 percent,” the IMF said.

Data contained in the report showed that the official exchange rate improved from N1,535/$ at the end of 2024 to N1,435/$ by the end of 2025, reflecting an appreciation of about 6.5 percent.

However, the average exchange rate for the year painted a different picture. The naira averaged N1,520/$ in 2025 compared with N1,479/$ in 2024, representing a depreciation of 2.8 percent on an annual basis.

Based on the IMF’s valuation model, the naira should have traded at about N1,142.04/$ using the end-2025 exchange rate, while the fair value based on the 2025 average rate was estimated at N1,130.88/$.

Meanwhile, the official FX rate stood at N1,356.27/$ as of Monday.

The IMF’s assessment comes nearly 3 years after the administration of President Bola Tinubu introduced sweeping FX reforms in June 2023. The measures dismantled Nigeria’s multiple exchange-rate regime and allowed the naira to trade more freely.

While the reforms led to a sharp weakening of the currency initially, they were designed to improve liquidity in the FX market and attract foreign investment inflows.

IMF urges CBN to moderate reserve accumulation

The fund said preserving exchange-rate flexibility would be critical to correcting the naira’s undervaluation and improving Nigeria’s external position over time.

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It advised the Central Bank of Nigeria (CBN) to ease the pace of foreign reserve accumulation while continuing to permit two-way movements in the FX market.

“Given the assessed REER undervaluation, slowing the pace of reserve accumulation and continuing to allow 2-way movement of the naira exchange rate combined with strengthening FX market functioning and advancing and supporting fiscal and structural reforms, particularly those that can improve non-oil/gas imports, would help close the gap,” the IMF stated.

The institution added that further efforts to improve FX market efficiency, strengthen fiscal management and support non-oil sectors of the economy would help reduce exchange-rate misalignment and reinforce Nigeria’s external balance.