The Nigerian naira surged to an eight-month high of 1,474.78/$ on Friday, driven by fiscal and monetary policies that have reduced demand for the U.S. dollar.
This marks a notable improvement from June 3, 2024, when the naira traded at 1,485.99/$ on the Nigerian Foreign Exchange Market (NFEM).
Key Drivers Behind the Naira’s Gains
Several factors have contributed to the naira’s recovery:
- Increased Domestic Refining: The Dangote Petroleum Refinery, with a capacity of 650,000 barrels per day, began petrol production in September 2024, reducing Nigeria’s dependency on fuel imports.
- The decline in Fuel Imports: By January 2025, Nigeria’s petrol imports had fallen to an eight-year low, with daily imports dropping to around 110,000 barrels, according to Vortexa Ltd.
- CBN’s Proactive Policies: The Central Bank of Nigeria (CBN) has cleared its forex backlog and implemented swift policy measures, including managing inflows from Eurobonds and dollar bonds, to stabilize the naira.
Impact of Reduced Dollar Demand
The decreased need for dollars, especially for petrol imports—historically accounting for 22-25% of Nigeria’s forex demand—has significantly eased market pressure. Additionally, invisible transactions saw an 11% decline in dollar demand from $6.4 billion in Q2 2024 to $5.7 billion in Q3 2024.
Positive Outlook for 2025
Experts predict a continued positive trajectory for the naira in 2025. Uche Uwaleke, Director of Nasarawa State University’s Institute of Capital Market Studies, attributes this to reduced food and petrol imports and increased fuel exports.
“Increased domestic refining capacity will lessen forex demand, while higher petroleum exports will boost inflows, supporting the naira,” Uwaleke noted.
Foreign Exchange Inflows Surge
Nigeria recorded a 136% rise in forex inflows during Q1 2024 compared to the previous year. This growth was fueled by:
- Eurobond Success: The federal government raised over $900 million through a historic dollar bond deal in 2024.
- Dual-Tranche Eurobond Issuance: In December 2024, Nigeria issued Eurobonds worth $2.2 billion, featuring a 6.5-year bond at 10.125% and a 10-year bond at 10.625% coupon rates.
Wale Edun, Minister of Finance, emphasized that this funding, combining Eurobond and Sukuk financing, would help cover the 2024 budget deficit.
CBN’s Market Stabilization Efforts
The CBN has introduced several measures to enhance forex market stability:
- Electronic Foreign Exchange Matching System (EFEMS): Launched in December to improve market orderliness.
- New FX Code: Introduced to boost transparency and liquidity.
According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), these reforms aim to restore confidence and stability in Nigeria’s forex market.
The naira is poised for sustained growth with strategic fiscal measures, robust CBN policies, and increased domestic production. Continued efforts to reduce import dependency and strengthen forex inflows will be critical for maintaining this upward momentum.
