Naira Faces Persistent Challenges in Official and Parallel Markets in 2025

 

The Nigerian naira continues to experience significant pressure in both the official and parallel foreign exchange markets, reflecting deep-seated economic challenges as of March 15, 2025. Despite efforts by the Central Bank of Nigeria (CBN) to stabilize the currency, the naira’s value has weakened, raising concerns among economists, businesses, and citizens. This article delves into the latest developments, the factors driving the naira’s struggles, and the potential implications for Nigeria’s economy.

Current State of the Naira

As of March 14, 2025, the naira has depreciated in both the official Nigerian Foreign Exchange Market (NFEM) and the parallel (black) market. In the official market, the naira reportedly weakened to ₦1,602.75 per US dollar, a decline from earlier rates in the month, reflecting ongoing demand pressures and limited foreign exchange supply. Meanwhile, in the parallel market, the currency slipped to ₦1,585 per dollar, a notable drop from its previous levels, according to reports from various sources tracking currency trends.

This depreciation follows a period of relative stability in February 2025, when the naira showed signs of resilience, appreciating to as high as ₦1,490 per dollar in the parallel market and closing at ₦1,502 in the official window. However, the gains were short-lived, and the currency has since faced renewed volatility, underscoring the fragility of Nigeria’s forex market.

Factors Driving the Naira’s Decline

Several factors are contributing to the naira’s persistent woes in both the official and parallel markets:

1. Limited Forex Supply: Despite efforts by the CBN to boost liquidity, including interventions such as dollar sales to Bureau De Change (BDC) operators and the introduction of the Electronic Foreign Exchange Matching System (EFEMS), the supply of foreign exchange remains inadequate to meet demand. Nigeria’s external reserves have continued to decline, dropping to $39.09 billion as of early March 2025, a decrease attributed to debt repayments and market interventions.
2. High Demand for Dollars: The persistent demand for dollars, driven by importers, businesses, and individuals seeking to hedge against currency depreciation, continues to exert pressure on the naira. The reliance on imported goods, particularly petroleum products, exacerbates this demand, as Nigeria still imports a significant portion of its fuel despite being an oil-producing nation.
3. Declining Oil Prices: Although oil production has increased to approximately 1.54 million barrels per day, a recent dip in global crude oil prices—falling to around $73.7 per barrel in February—has reduced Nigeria’s forex earnings. This decline offsets some of the gains from higher production, limiting the country’s ability to bolster its reserves and support the naira.
4. Widening Gap Between Markets: The disparity between the official and parallel market rates has grown, with the parallel market rate now slightly stronger than the official rate at ₦1,585 versus ₦1,602.75. This unusual trend suggests a lack of confidence in the official market, driving more transactions to the parallel market and undermining the CBN’s efforts to unify exchange rates.
5. Structural Economic Issues: Nigeria’s overreliance on oil exports, limited diversification of revenue sources, and weak non-oil export performance continue to weaken the naira. High inflation, which hit 19.64% in mid-2022 and remains elevated, further erodes purchasing power and confidence in the currency.

CBN’s Efforts and Their Limitations

The CBN has implemented several measures to address the naira’s challenges, but these have yet to yield sustainable results:

• EFEMS and Transparency: The Electronic Foreign Exchange Matching System, introduced in December 2024, aims to enhance transparency and price discovery in the official market. While it initially helped stabilize the naira, its impact has waned as market conditions deteriorate.
• BDC Interventions: The CBN has extended its $25,000 weekly dollar sales to BDC operators until May 2025, aiming to improve liquidity in the parallel market. However, the scale of these interventions appears insufficient to meet the overwhelming demand.
• Clearing FX Backlog: The CBN has made progress in clearing a $7 billion foreign exchange backlog, which has boosted investor confidence to some extent. However, this has not translated into a significant reduction in forex demand or a sustained appreciation of the naira.

Despite these efforts, analysts argue that the CBN’s interventions are short-term fixes that fail to address the structural deficiencies in Nigeria’s economy. The lack of coordination between monetary and fiscal policies further complicates efforts to stabilize the currency.

Economic and Social Implications

The naira’s continued depreciation has far-reaching consequences for Nigeria’s economy and its citizens:

1. Rising Cost of Living: A weaker naira increases the cost of imported goods, including fuel, food, and raw materials, driving up inflation and reducing purchasing power. This exacerbates the economic hardship faced by many Nigerians, particularly those in low-income households.
2. Business Challenges: Companies reliant on imported inputs face higher operational costs, which may lead to price hikes, reduced profitability, or even business closures. Small and medium-sized enterprises (SMEs), a critical sector of the economy, are particularly vulnerable.
3. Investor Confidence: The widening gap between official and parallel market rates and the naira’s volatility deter foreign investors, who seek stability and predictability. This could hinder Nigeria’s efforts to attract foreign portfolio investments and boost forex inflows.
4. Social Unrest: Economic difficulties, compounded by currency depreciation, could fuel social unrest and dissatisfaction with the government, especially as the cost of living continues to rise.

Outlook and Potential Solutions

Looking ahead, the naira’s trajectory remains uncertain, with analysts offering mixed predictions. Some, like Abiodun Keripe of Afrinvest Consulting, anticipate that the naira could maintain stability in the near term if the CBN continues its interventions and there are no significant market shocks. Others, such as Comercio Partners, project a further decline, estimating the naira could reach ₦1,700-₦1,800 per dollar by mid-2025 without structural reforms.

To address the naira’s woes and achieve long-term stability, experts recommend the following measures:

1. Economic Diversification: Reducing Nigeria’s dependence on oil by boosting non-oil exports, such as agriculture and manufacturing, could increase forex earnings and reduce pressure on the naira.
2. Enhancing Forex Supply: The government and CBN should explore additional sources of forex inflows, such as diaspora remittances, Eurobond issuances, and incentives for foreign direct investment.
3. Tackling Inflation: Implementing fiscal and monetary policies to curb inflation, such as supporting SMEs and improving agricultural productivity, could stabilize prices and strengthen the naira’s value.
4. Improving Market Confidence: Greater transparency in forex management, including publishing net external reserves data, could boost investor confidence and reduce speculative activities in the parallel market.
5. Collaboration with Private Sector: Partnerships with private entities, such as Dangote Refinery, to reduce fuel imports could save billions in forex and support the naira. The refinery’s full operationalization could significantly alleviate pressure on the currency.

Conclusion

The naira’s persistent struggles in both the official and parallel markets as of March 15, 2025, highlight the complex challenges facing Nigeria’s economy. While the CBN has taken steps to stabilize the currency, these efforts have been undermined by structural weaknesses, limited forex supply, and external pressures. Without a comprehensive and coordinated approach to address these issues, the naira’s woes are likely to continue, with significant implications for Nigeria’s economic stability and the well-being of its citizens. As the government navigates this crisis, the focus must shift toward long-term reforms that promote diversification, enhance forex inflows, and restore confidence in the currency.