Why the Naira will be stable in 2025

The Naira has seen its fair share of storms over the years, with 2024 being particularly tumultuous. However, as the calendar flips to 2025, a new narrative is emerging—one of cautious optimism and stability. Recent reports suggest the Naira could settle at N1,574/$1 by the end of this year, only a slight shift from its 2024 closing rate of N1,553/$1. While minor fluctuations are expected, most projections predict stability, a welcome change from the 40% nosedive the currency suffered last year.

But what’s behind this newfound confidence in the Naira?

Clearing the Storm Clouds

The forex market in 2024 was plagued by volatility and uncertainty, but 2025 is shaping up differently. A pivotal change has been the Central Bank of Nigeria’s (CBN) introduction of a new forex platform. This system, built on transparency, has brought much-needed calm to the market. Speculative activities, once rampant, are now subdued as clear rules and regulations steer the market back to fundamentals.

This stability is further bolstered by a major shift in Nigeria’s import dynamics. For years, imported petroleum products were a significant drain on the country’s forex reserves, accounting for 39% of total imports between 2022 and 2024. But now, with domestic refinery operations ramping up, this reliance is set to decrease. As Nigeria reduces its import bill, the demand for forex is expected to drop significantly, easing pressure on the Naira.

A Stronger Reserve Position

Nigeria’s forex reserves have also made impressive strides. From a starting point of $32.89 billion in 2024, they’ve climbed closer to $41 billion. This growth is fueled by a combination of foreign debt inflows and higher crude oil prices. Even if global oil prices face downward pressure this year, Nigeria’s crude output is expected to rise, further strengthening its reserves.

Moreover, the government’s renewed interest in the foreign debt market could inject additional dollars into the system, providing more liquidity and stability.

Foreign Investments and Remittances on the Rise

Foreign direct investment (FDI) is another bright spot in Nigeria’s economic outlook. With the government actively courting foreign investors and signing multiple bilateral agreements, there’s a growing pipeline of capital poised to enter the country.

Forex remittances are also on an upward trajectory, reaching $600 million monthly by mid-2024. Policies like the non-resident BVN initiative are expected to drive these numbers higher. While Nigeria still requires an ambitious $80 billion to $100 billion annually to maintain a stable exchange rate, these inflows make this target seem increasingly achievable.

Taming Speculation and Improving Balance Sheets

The balance of payments offers another reason for optimism, with a surplus of over $6 billion reported as of Q3 2024. This healthier external account position, combined with expected global interest rate cuts, makes Nigeria’s high yields more attractive to foreign investors.

Even speculative activities, which contributed to forex volatility in 2024, have been reined in. In the first half of 2024, crypto-driven dollar demand added chaos to the market. However, a clampdown on these transactions stabilized the exchange rate in the latter half of the year. This vigilance by the CBN suggests that such stability could persist in 2025.

A Calmer Year Ahead

All signs point to 2025 being a calmer year for the Naira. Improved reserves, reduced import dependency, rising remittances and FDIs, and enhanced market transparency all lay the groundwork for a stable exchange rate.

While challenges will undoubtedly arise—as they always do—the pieces for a more stable currency are falling into place. For once, the Naira might just get a reprieve from the drama.

And with that, Nigerians can look forward to a year where economic headlines are dominated not by crises, but by stories of resilience and progress.