Nigeria’s foreign-exchange position has improved significantly in 2026, but the stronger external reserves have renewed debate over whether the naira should appreciate further and whether Nigerians are getting the full benefit of the country’s improved dollar liquidity.

Nigeria’s gross external reserves have risen above $55 billion, while the naira has remained around the ₦1,300-to-$1 range in the official foreign-exchange market.

The development has prompted arguments that Nigeria now has greater capacity to support the currency and reduce the pressure that exchange-rate movements have placed on the prices of imported goods, services and production inputs.

However, economists and international institutions caution that the size of the reserves alone does not determine the appropriate exchange rate.

IMF identifies possible naira undervaluation

The International Monetary Fund’s 2026 Article IV assessment provides some support for the argument that the naira may be weaker than economic fundamentals suggest.

According to the IMF, its EBA-Lite real effective exchange-rate model showed a 25.6 per cent gap, implying that the naira’s real effective exchange rate was weaker than the level suggested by the model’s assessment of economic fundamentals.

The IMF, however, did not recommend simply fixing the naira at a particular dollar exchange rate.

Instead, it called for greater two-way flexibility in the foreign-exchange market, improved market functioning and a measured approach to reserve accumulation.

The Fund also stressed that the assessment should be interpreted with caution because of significant net errors and omissions in the underlying data.

Why $55bn reserves matter

The increase in reserves represents a significant change from the period of severe foreign-exchange shortages that Nigeria experienced in previous years.

Stronger reserves provide a larger external buffer and can help the Central Bank of Nigeria respond to disorderly movements in the foreign-exchange market.

But gross reserves should not be interpreted as money that can simply be released into the market to force the naira to a particular level.

The IMF’s June 2026 assessment, for example, put Nigeria’s gross international reserves at $46 billion at the end of 2025, while also assessing the country’s external position and reserve adequacy using its own methodology.

The distinction is important because the headline reserve figure does not necessarily represent the amount immediately available for defending any specific exchange rate.

Could a stronger naira reduce prices?

A stronger naira could reduce the local-currency cost of imported products and inputs, provided the appreciation was sustained and passed through the supply chain.

Import-dependent businesses could potentially pay less for machinery, raw materials, pharmaceuticals and other goods priced in dollars.

Consumers could also benefit if lower import costs translated into reduced prices.

However, exchange-rate appreciation would not automatically bring down all prices. Domestic inflation is also influenced by transportation costs, energy, food production, infrastructure, taxes, logistics and other supply-side factors.

The IMF has warned that conditions remain difficult for many Nigerians. Its June 2026 assessment said poverty stood at 63 per cent at the national poverty line, while an estimated 27 million Nigerians experienced food insecurity in late 2025.

The argument for appreciation

Some economists and commentators argue that the improved external position gives Nigeria room to allow the naira to strengthen.

Their argument is that maintaining a relatively weak currency increases the naira cost of imported goods and can contribute to higher living and production costs.

From this perspective, allowing the currency to appreciate could improve purchasing power and reduce some of the pressure on households and businesses.

Some advocates have consequently called for an appreciation of between 25 and 50 per cent.

But such a move would represent a major policy decision and should not be confused with the IMF’s finding of a 25.6 per cent real-effective-exchange-rate gap. The two figures measure different things, and the IMF has not recommended a 25-to-50 per cent nominal appreciation of the naira.

Why policymakers may remain cautious

There are also potential costs associated with a rapid appreciation.

Nigeria remains heavily dependent on oil and gas exports for foreign-exchange earnings. A stronger naira could reduce the naira value of dollar-denominated export earnings and government revenues.

It could also affect the competitiveness of Nigerian exporters by making their products more expensive in foreign markets.

The IMF therefore continues to support a flexible exchange-rate regime, while recognising that foreign-exchange intervention can have a role in addressing sharp or disorderly market movements.

The Fund said the exchange rate should continue to act as a shock absorber and that foreign-exchange intervention should complement, rather than replace, broader macroeconomic adjustments.

Buhari-era economy also enters the debate

The debate over the naira has also revived arguments about the economic conditions inherited from former President Muhammadu Buhari’s administration.

Descriptions of the inherited economy as “cancer-infected” are political characterisations rather than standard economic measurements.

The IMF’s latest assessment presents a more mixed picture. It says reforms implemented since 2023 have improved macroeconomic stability, rebuilt external buffers and improved foreign-exchange market functioning, while noting that living conditions remain difficult for many Nigerians.

The central question now is how the government and the CBN should use the improved external position.

Whether stronger reserves should result in a substantially stronger naira, or whether the currency should continue to adjust largely through market forces, remains a matter of economic policy debate.

What is clear is that Nigeria’s foreign-exchange position has strengthened considerably, while the question of how much that improvement should translate into stronger purchasing power for Nigerians remains unresolved.