By Emmanuel Olugua
The International Monetary Fund (IMF) has declared that the Nigerian naira remains significantly undervalued despite recent gains recorded under the Federal Government’s foreign exchange reforms, suggesting that the local currency should be trading at about N1,145 to the dollar rather than the current market rate of around N1,360/$.
The Washington-based lender made the assessment in its latest Article IV Consultation Report on Nigeria, where it stated that the naira’s current valuation remains below levels justified by the country’s economic fundamentals.
According to the IMF, its Real Effective Exchange Rate (REER) analysis indicates a substantial undervaluation of the Nigerian currency even after a sharp appreciation recorded in 2025.
“Despite the REER appreciation that has already taken place in 2025, the EBA-lite REER model indicates a REER gap of minus 25.6 percent,” the Fund stated.
The REER measures the value of a country’s currency against those of its major trading partners after adjusting for inflation and is widely regarded as a key indicator of whether a currency is overvalued or undervalued.
The IMF noted that Nigeria’s REER appreciated by 32 percent in 2025, while the Nominal Effective Exchange Rate (NEER) weakened by 5.2 percent during the same period.
The report revealed that the official exchange rate strengthened from N1,535 per dollar at the end of 2024 to N1,435/$ by the close of 2025, representing an appreciation of about 6.5 percent.
However, using its exchange-rate valuation model, the IMF estimated that the naira should have traded at approximately N1,142.04/$ based on the end-of-year exchange rate benchmark, or N1,130.88/$ when calculated using the annual average exchange rate.
The assessment suggests that the naira remains undervalued by more than N200 against the dollar when compared with the official exchange rate of N1,356.27/$ recorded on Monday.
The IMF’s latest verdict comes nearly three years after President Bola Tinubu launched sweeping foreign exchange reforms aimed at dismantling Nigeria’s multiple exchange-rate regime and replacing it with a more market-driven system.
Although the reforms initially triggered a steep depreciation of the naira, government officials argued that the measures were necessary to restore transparency, improve liquidity in the foreign exchange market, attract foreign investment, and eliminate long-standing distortions in the economy.
The Fund’s latest findings appear to suggest that the reforms are beginning to produce positive results, with the naira gradually moving closer to levels supported by underlying economic fundamentals.
Nevertheless, the IMF stressed that further progress would require sustained exchange-rate flexibility and continued reforms in the foreign exchange market.
It advised the Central Bank of Nigeria (CBN) to moderate the pace of foreign reserve accumulation while allowing greater two-way movement in the exchange rate.
“Given the assessed REER undervaluation, slowing the pace of reserve accumulation and continuing to allow two-way movement of the naira exchange rate, combined with strengthening FX market functioning and advancing fiscal and structural reforms, would help close the gap,” the Fund stated.
The IMF further urged Nigerian authorities to deepen reforms aimed at improving fiscal management, strengthening foreign exchange market efficiency and boosting productivity in non-oil sectors of the economy.
According to the Fund, such measures would help narrow the exchange-rate misalignment, strengthen Nigeria’s external position and support long-term economic stability.