The International Monetary Fund (IMF) has disclosed what it considers the fair value of the Nigerian naira, stating that the local currency remains significantly undervalued despite recent gains against the US dollar across official and parallel foreign exchange markets.
Naira Undervalued by 25.6%
In its latest assessment of Nigeria's economy, the Washington-based lender said the naira is trading about 25.6% below its value based on the country's economic fundamentals, even after a notable recovery following sweeping foreign exchange reforms introduced by the Federal Government.
According to the IMF's latest Article IV Consultation Report, the naira's current exchange rate does not fully reflect improvements in Nigeria's external position and macroeconomic adjustments.
The Fund explained that its Real Effective Exchange Rate (REER) model, which compares a country's currency against those of its major trading partners while adjusting for inflation, indicates that the naira remains weaker than it should be.
"Despite the REER appreciation that has already taken place in 2025, the EBA-lite REER model indicates a REER gap of -25.6 percent," the IMF stated.
Fair Value Around N1,130/$
Based on this assessment, the institution estimated that the naira should have traded at approximately N1,142.04 per dollar using the exchange rate at the end of 2025. Based on the average exchange rate for the year, the currency's fair value was estimated at approximately N1,130.88 per dollar.
These figures are stronger than the prevailing official exchange rate, which stood at N1,356.27/$ as of Monday, June 14, 2026.
Naira Gains Ground After Volatility
The IMF acknowledged that the naira has made significant progress following Nigeria's foreign exchange reforms. According to the report, the official exchange rate improved from N1,535/$ at the end of 2024 to N1,435/$ at the end of 2025, representing an appreciation of about 6.5%.
However, on an average annual basis, the naira still weakened slightly, moving from N1,479/$ in 2024 to N1,520/$ in 2025, a depreciation of about 2.8%.
The Fund also noted that Nigeria's Real Effective Exchange Rate appreciated by 32% in 2025, even as the Nominal Effective Exchange Rate depreciated by 5.2%, suggesting that the naira's underlying strength may be improving faster than its nominal exchange rate indicates.
Tinubu's FX Reforms Continue to Shape the Market
The IMF's assessment comes nearly three years after President Bola Tinubu's administration introduced far-reaching reforms to Nigeria's foreign exchange market in June 2023. The reforms abolished the country's multiple exchange-rate windows and allowed the naira to trade more freely in a market-driven system.
While the move initially triggered a sharp depreciation of the currency and increased inflationary pressures, authorities argued that it was necessary to restore investor confidence, improve market liquidity, and attract foreign capital into the economy.
IMF Advises CBN on Reserves and Flexibility
Despite the naira's recent recovery, the IMF urged the Central Bank of Nigeria (CBN) to maintain exchange rate flexibility and avoid excessive accumulation of foreign reserves.
According to the Fund, allowing the naira to move in both directions based on market forces, while strengthening foreign exchange market operations and implementing broader economic reforms, would help close the valuation gap over time.
"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 IMF said.
The latest assessment is likely to fuel fresh debates over the naira's true value and whether ongoing reforms will ultimately deliver a stronger, more stable Nigerian currency.
