AfDB Forecasts 6% Naira Depreciation by 2026 Amid Global Market Volatility
The African Development Bank (AfDB) has projected that the Nigerian naira will depreciate by at least 6% between 2025 and 2026, attributing this to persistent global financial market uncertainties. This forecast is part of the AfDB’s newly released African Economic Outlook 2025, which assesses the broader implications of global volatility on African currencies. The warning comes shortly after the Central Bank of Nigeria (CBN) reported a notable reduction in exchange rate volatility, with fluctuations falling below 0.5%, indicating some short-term improvements in Nigeria’s FX stability.
CBN Governor Olayemi Cardoso, following the 300th Monetary Policy Committee meeting, credited the FX stability to recent fiscal and monetary policy reforms. He noted that improved investor confidence, rising foreign exchange reserves, and increased transparency at the CBN have contributed to calming the currency market. However, the AfDB report suggests these domestic improvements may not shield Nigeria from the broader depreciation trends driven by external pressures.
The AfDB projects that 21 African countries, including Nigeria, Egypt, Ghana, and Ethiopia, could experience significant currency depreciation of 6% or more in 2025. This trend is linked to declining export earnings and weak external positions. In contrast, countries such as Kenya, Morocco, and those in the CFA franc zone are expected to see currency appreciations due to stronger economic fundamentals. Historical data from 2023 shows that while many African currencies depreciated, some, like the South African rand and Kenyan shilling, later rebounded in 2024.
Kenya’s currency rebound was attributed to successful Eurobond issuance and strategic debt buybacks, leading to a surge in portfolio investment inflows. Meanwhile, some countries like Guinea and Seychelles continue to grapple with macroeconomic instability and market fragility, resulting in ongoing currency weakness. Currencies pegged to the euro, such as the CFA franc, have fared better, thanks in part to the euro’s stabilization against the US dollar.
Despite mixed outcomes across the continent, the AfDB emphasizes the need for structural reforms to address underlying vulnerabilities. These include aligning FX regimes with market realities, improving export capacity, reducing fiscal deficits, and enhancing political and economic stability. The report urges African governments to take proactive measures to build economic resilience in the face of global uncertainties. The CBN remains optimistic, maintaining that its reform agenda will sustain Nigeria’s recovery and foster long-term economic stability.
Source: Nairametric