LAGOS: Over the past year, Nigeria’s currency, the Nigerian Naira, has shown signs of relative stability after years of volatility and steep depreciation. A combination of policy reforms, improved foreign exchange inflows, rising external reserves and tighter monetary policy helped support the currency and restore investor confidence in Africa’s largest economy.
Economic analysts say the gradual stabilisation of the naira reflects the cumulative impact of structural reforms introduced by the Central Bank of Nigeria and the federal government.
1. Foreign Exchange Market Reforms
One of the most significant factors supporting the naira has been sweeping reforms in Nigeria’s foreign exchange market.
Authorities unified the country’s previously fragmented exchange rate system, introducing a willing buyer, willing seller model that allows market forces of demand and supply to determine the exchange rate.
The reform merged multiple exchange windows into a single Nigerian Foreign Exchange Market (NFEM), improving transparency and reducing distortions that had previously encouraged speculation and arbitrage.
The removal of exchange rate segmentation also made Nigeria’s currency market more predictable for investors and businesses, encouraging foreign participation.
2. Clearance of FX Backlogs
Another major policy that strengthened the naira was the clearing of billions of dollars in outstanding foreign exchange obligations owed to airlines, investors and multinational companies.
Authorities cleared more than $7 billion in FX backlogs, which had previously discouraged foreign investment and trapped funds inside the Nigerian financial system.
By settling these obligations, the government restored confidence among international investors and improved Nigeria’s credibility in global financial markets.
3. Increase in External Reserves
Nigeria’s rising foreign exchange reserves also played a key role in stabilising the currency.
Gross external reserves climbed to about $50.45 billion in early 2026, the highest level in more than a decade.
Higher reserves give the central bank greater capacity to intervene in the FX market during periods of volatility, helping to protect the naira from sudden shocks.
Strong reserves also provide a cushion for imports and international payments, improving investor confidence in the country’s economic stability.
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4. Higher Interest Rates and Tight Monetary Policy
The central bank adopted tighter monetary policy to control inflation and reduce pressure on the naira.
High interest rates made Nigerian financial assets more attractive to both domestic and foreign investors, particularly in the government bond market.
The policy encouraged capital inflows into naira-denominated securities, helping increase the supply of foreign exchange in the market.
5. Increased Foreign Capital Inflows
Nigeria has also seen a rise in portfolio investment inflows into its bond and financial markets.
Foreign holdings of naira-denominated assets increased significantly as investors were attracted by high yields and renewed confidence in economic reforms.
Some reports estimate that offshore investments in Nigerian local debt rose sharply, strengthening demand for the naira and boosting liquidity in the financial system.
6. Improved Balance of Payments and Export Earnings
Another key driver of currency stability was the improvement in Nigeria’s external financial position.
Nigeria recorded a $6.83 billion balance-of-payments surplus, supported by stronger exports, rising remittances and reduced import spending.
Gas exports and non-oil exports also expanded significantly, while remittances from Nigerians living abroad increased, bringing more foreign currency into the economy.
These inflows helped strengthen Nigeria’s external accounts and reduce pressure on the naira.
7. Stronger FX Liquidity Measures
The central bank also introduced measures to improve foreign exchange liquidity in the market.
For example, licensed Bureau de Change operators were allowed to purchase foreign currency from banks to increase dollar availability and reduce the gap between the official and parallel markets.
Such policies were aimed at ensuring that businesses and individuals could access foreign currency more easily through official channels.
8. Structural Economic Reforms
Broader economic reforms implemented by the administration of Bola Ahmed Tinubu have also contributed indirectly to naira stability.
These reforms include the removal of fuel subsidies, exchange-rate adjustments and fiscal reforms aimed at strengthening government revenues and reducing budget deficits.
Although these measures initially triggered inflation and economic hardship, economists say they helped correct long-standing distortions in Nigeria’s economy.
Signs of Recovery
The combined impact of these reforms has begun to reflect in the currency’s performance.
The naira recorded its first annual appreciation in about 13 years, strengthening by nearly 6.9 percent in 2025 after years of decline.
In early 2026, the currency also showed modest improvements in the official market, trading stronger than earlier levels recorded during the previous year.
Challenges Still Remain
Despite the improvements, analysts caution that the naira’s stability remains fragile.
Factors such as global oil price volatility, inflation pressures, weak industrial output and capital flight could still weaken the currency if reforms are not sustained.
The World Bank has advised Nigeria to continue strengthening export earnings, attract long-term investment and maintain policy transparency in order to sustain currency stability.
Outlook
Looking ahead, economists expect the naira to trade within a relatively stable band if the government continues implementing reforms and improving foreign exchange inflows.
However, the long-term strength of the currency will ultimately depend on Nigeria’s ability to diversify its economy, expand exports, increase industrial production and attract sustained foreign investment.
