IMF Says Naira Undervalued by 25.6%, Estimates Fair Exchange Rate at N1,142 per Dollar
The International Monetary Fund (IMF) has revealed that the Nigerian naira remains significantly undervalued despite recent improvements in the foreign exchange market. According to the fund’s latest assessment, the local currency is trading about 25.6 percent below its fair value, suggesting that the naira should be stronger than its current exchange rate against the US dollar.
In its latest Article IV consultation report on Nigeria, the IMF explained that its Real Effective Exchange Rate (REER) model indicates the naira is still weaker than levels supported by the country’s economic fundamentals. The REER, which measures a currency’s value against those of major trading partners while accounting for inflation, showed notable improvement in 2025, with the naira appreciating by 32 percent despite fluctuations in the broader exchange market.
Based on the IMF’s calculations, the naira’s fair value would be around N1,142 per dollar using the exchange rate recorded at the end of 2025. The estimate is even lower at N1,130 per dollar when calculated using the average exchange rate for the year. This contrasts sharply with the current official market rate, highlighting what the institution describes as a significant exchange rate gap.
The assessment comes nearly three years after the Federal Government introduced sweeping foreign exchange reforms under President Bola Tinubu’s administration. The reforms, which eliminated the multiple exchange-rate system and allowed the naira to trade more freely, initially triggered a sharp depreciation of the currency. However, authorities argued that the move was necessary to improve transparency, attract foreign investment, and boost liquidity in the foreign exchange market.
While acknowledging progress made through the reforms, the IMF advised the Central Bank of Nigeria (CBN) to maintain exchange rate flexibility and slow the pace of foreign reserve accumulation. The fund noted that allowing the naira to move more freely in response to market forces, alongside continued fiscal, structural, and non-oil sector reforms, would help reduce the currency’s undervaluation and strengthen Nigeria’s overall economic position in the long term.
source: The cable