PwC Shares 5 Reasons Naira Exchange Rate Against US Dollar Will Be Stable Better in 2025
- There are strong expectations that the naira will recover against the US dollar in the foreign exchange market
- The latest positive review for naira is from PricewaterhouseCoopers(PWC) an advisory and tax services company
- The exchange rate stability projected for the Nigerian currency is however hinged on five economic factors
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Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.
PricewaterhouseCoopers (PwC) has projected a stable outlook for the Nigerian foreign exchange market in 2025.
In its recently released economic outlook report, PwC outlined five key factors that will ensure this projection becomes a reality.
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The report cited various reforms by the Central Bank of Nigeria and also fiscal policies expected in 2025 for the strong naira outlook.
Here are the five factors PWC believes will determine exchange rates in 2025.
1. Price discovery and exchange rate unification
According to PwC, multiple exchange rates in the market created opportunities for arbitrage and market distortions. The direction is now towards unifying these multiple exchange rates into a single rate.
The determination of the CBN to end multiple exchange rates and harmonize them into a unified system through the Nigerian Foreign Exchange Market (NFEM) is a game changer.
2. Transparency in access forex
PwC noted that there is now transparency in foreign exchange transactions and no more bureaucratic bottlenecks in accessing forex.
There are now clear Clearer guidelines and more accessible information for businesses and investors.
Also, the Introduction of the Enhanced Foreign Exchange Market System (EFEMS) is a positive development.
3. Liquidity improvement
According to PWC, Nigeria's forex market now has more liquidity thanks to oil production and remittance is another factor driving exchange rate stability, reported BusinessDay.
It explained that In 2022, Nigeria’s average daily oil production was approximately 1.2 million barrels per day (mbpd), with oil prices ranging from $60 to $80 per barrel, affecting revenue generation.
The country attracted $1.06 billion in capital importation in Q4 2022, reflecting a 51.51% decrease, while remittances, a key source of foreign exchange, totalled $25 billion, though inflows were inconsistent.
As of December 2024, average daily oil production had increased to 1.49 mbpd, and capital importation for Q3 2024 reached $1.25 billion, a 91.35% rise compared to Q3 2023.
Additionally, from January to October 2024, diaspora remittances via International Money Transfer Operators (IMTOs) totalled $4.22 billion, nearly doubling the $2.62 billion recorded during the same period in 2023.
These inflows PWC said have helped the dollar supply, reducing pressure on the naira.
4. Supply Demand backlogs payments
The CBN has made significant progress in addressing the FX backlog, estimated at $7 billion. PwC highlights that this effort has restored confidence among businesses and investors by ensuring smoother access to foreign exchange.
The reduction in backlogs is a crucial step toward a more stable exchange rate environment.
5. Market and investor confidence
Furthermore, PwC stated that the reforms undertaken by the Central Bank of Nigeria (CBN) have helped boost confidence among both local and foreign investors.
It noted that the International Monetary Fund (IMF) and other global institutions have recognized the positive impact of these changes.
As a result, portfolio investors are showing increased interest in the Nigerian market, further boosting capital inflows and market stability.
Nigeria’s foreign reserves rise to 4-year high
Legit.ng reported that new data from the Central Bank of Nigeria (CBN) reveals an improvement in the country’s foreign reserves, now surpassing $40 billion.
This is positive news for the naira, as it indicates that the apex bank has a stronger supply of foreign currency to meet debt obligations and defend the naira in the market.
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Source: Legit.ng
