How Nigeria Can Sustain Naira Stability – World Bank
The World Bank has outlined key strategies Nigeria must adopt to achieve and sustain long-term stability for the naira, emphasising the importance of deeper foreign exchange (FX) market reforms, improved communication of monetary policy, and enhanced non-oil revenue generation.
These recommendations are contained in the October 2025 edition of its Nigeria Development Update titled “From Policy to People: Bringing the Reform Gains Home”, released on Wednesday.
According to the report, while recent reforms have helped stabilise the naira and improve FX market functioning, the country remains vulnerable to external shocks due to a narrow export base and dependence on short-term capital inflows. To ensure lasting stability of the local currency, the World Bank urged the government to focus on longer-term foreign exchange inflows from oil, remittances, and especially non-oil exports. It also called for a more transparent FX policy framework and progressive adjustments to regulations governing banks’ foreign currency positions.
FX Market Still Dependent on Short-Term Inflows
The World Bank observed that the Nigerian FX market, despite notable reforms, still heavily relies on inflows from foreign portfolio investors (FPI) and interventions by the Central Bank of Nigeria (CBN). High yields on Open Market Operations (OMO) instruments have continued to attract short-term foreign capital, while the CBN has used positive net FX inflows to build reserves and maintain exchange rate stability.
However, for the FX market to become sustainably liquid and market-driven, the World Bank stressed that Nigeria must focus on attracting more durable sources of foreign exchange, particularly through increased oil earnings and formalised remittance channels. Equally important is the urgent need to expand and diversify the country’s export base beyond oil, which requires tackling longstanding supply-side constraints.
Allowing Banks Greater FX Flexibility
The report proposed a gradual relaxation of restrictions on banks’ net open FX positions within safe macroprudential limits as part of a broader strategy to deepen the FX market and support exchange rate flexibility. With higher domestic yields and reduced incentives to hold U.S. dollars, the World Bank noted that this policy shift could help stabilise the naira by aligning market forces more closely with fundamentals.
The CBN in January 2024 said the Net Open Position (NOP) limit of banks’ overall foreign currency assets and liabilities both on and off-balance sheet should not exceed 20 percent short or 0 percent long of shareholders’ funds unimpaired by losses using the gross aggregate method.
Nonetheless, the report emphasised that any such adjustments should be made cautiously and alongside measures to build market confidence. It also underscored the need for the CBN to clarify and consistently communicate its FX intervention policies, including its reserves management strategy and thresholds for intervention during external shocks.
