According to a report by the Economist Intelligence Unit (EIU), Nigeria’s official exchange rate is expected to weaken to N1,068.3/$ by 2025. The report highlighted the widening gap between the official and parallel-market exchange rates, projecting a larger devaluation in 2025 to address this discrepancy. The revised average exchange-rate forecast for 2025 is N1,068.3:US$1, reflecting a more significant correction compared to the previous estimate of N914.4:US$1.
The EIU report also mentioned the challenges faced by Nigeria in clearing its $6 billion forex backlog, stating that the Central Bank of Nigeria (CBN) lacks the firepower and experience to conduct monetary policy under a float. The report indicated a negative outlook for the naira, citing continued currency losses due to the substantial size of the parallel market and the country’s low foreign exchange reserves.
Despite efforts by the CBN to address forex illiquidity, including clearing some of its forex liabilities, challenges persist in efficiently disbursing foreign exchange. The report emphasized the reluctance to allow free access to hard currency and the resulting illiquidity in the Nigerian Foreign Exchange Market (NFEM).
The EIU projected a sizable devaluation in 2025 or sooner, leading to a 38.5% loss against the US dollar over the year, with an exchange rate of N1,142.5:US$1 at end-December. However, it expressed skepticism about a lasting commitment to a market-led naira, as the CBN lacks experience in conducting monetary policy under a float.
The report highlighted high inflation, a continued spread with the parallel market, and periodic devaluations, projecting an exchange rate of N1,262.1:US$1 at end-2028. The EIU’s analysis suggests a challenging outlook for Nigeria’s exchange rate regime, with uncertainties around its stability and potential future devaluations.
