Despite recent claims of stabilizing foreign exchange markets by Nigeria’s central bank, the African Development Bank (AfDB) has projected a 6% depreciation of the naira between 2025 and 2026. The warning is contained in the 2025 African Economic Outlook released by the Bank, highlighting looming global financial headwinds and their expected impact on currency stability across the continent.
The AfDB’s forecast suggests that Nigeria will remain among the group of African nations most exposed to currency pressure in the year ahead. This comes even as Central Bank of Nigeria (CBN) Governor Olayemi Cardoso recently asserted that Nigeria’s FX volatility had dropped to below 0.5% a development he credited to improved fiscal coordination and monetary reforms.
But the AfDB report paints a broader and more sobering picture: 21 African countries are expected to suffer currency depreciation of at least 6% in 2025. Nigeria is joined on this list by other economic heavyweights like Egypt, Ethiopia, Ghana, and Zimbabwe. These countries are particularly vulnerable to declining export revenues, weak currency reserves, and domestic economic misalignments.
In contrast, a select group including Kenya, Morocco, and members of the CFA franc zone is projected to experience currency appreciation by more than 3% against the US dollar. These economies benefit from stronger market fundamentals, more predictable policy environments, and diversified export bases.
A Lingering Naira Crisis
The naira’s troubles are not new. In 2023, the currency suffered one of the continent’s steepest depreciations, driven by a combination of inconsistent FX policy, limited dollar inflows, and excessive reliance on oil exports. While some nations have since begun to recover from previous shocks, the report categorizes Nigeria among those that have yet to reverse their currency losses.
The AfDB cautions that domestic factors such as low productivity, monetization of fiscal deficits, political uncertainty, and opaque FX regimes continue to undermine investor confidence and create downward pressure on the naira and other African currencies. It warns that unless these structural weaknesses are addressed, external shocks will continue to find easy entry points into fragile monetary systems.
The Bigger Picture: Global Volatility Meets Local Vulnerability
Global financial market volatility has become a central theme for 2025. With rising interest rates in developed markets, increased geopolitical tensions, and slower global demand, many African economies especially those reliant on commodity exports are expected to face declines in foreign exchange earnings.
For countries like Nigeria, this poses a double threat. On one hand, reduced earnings from oil and gas exports weaken the naira’s purchasing power. On the other, capital flight and diminished foreign investment leave central banks with fewer tools to defend their currencies.
Policy Recommendations: Stabilization Through Reform
The AfDB report urges African governments, particularly those in the most vulnerable currency zones, to strengthen domestic macroeconomic fundamentals. Key recommendations include:
- Diversifying exports through value-added production;
- Reducing fiscal deficits and improving transparency in public spending;
- Adopting more flexible and unified FX regimes;
- Expanding local production to limit import dependency.
By improving these fundamentals, countries can reduce exposure to external shocks and foster long-term currency stability lessening the economic cost of constant devaluation.
