Paragraph 1: Naira Appreciation and Optimism for 2025 Target
The Nigerian naira has shown recent signs of strengthening, prompting optimism about reaching the N1500/$ exchange rate target set in the 2025 Appropriation Bill. Aminu Gwadebe, President of the Association of Bureau De Change of Nigeria (ABCON), expressed confidence in achieving this target, citing recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN) as the driving force behind the naira’s appreciation. The naira’s performance in the official and parallel markets supports this optimism. The official rate, as reported by FMDQ, appreciated to N1,539.55/$ on Monday, December 23, 2024, while parallel market rates hovered around N1,650/$. Gwadebe attributed the positive trend to increased transparency in the foreign exchange market and the CBN’s interventions to maintain liquidity.
Paragraph 2: CBN’s Electronic Forex Matching System and Increased Transparency
Central to the naira’s recovery is the CBN’s newly implemented Electronic Foreign Exchange Matching System (EFEMs). Launched at the beginning of December 2024, EFEMs aims to enhance operational efficiency and transparency within the Nigerian FX market. This system is expected to play a crucial role in achieving the N1500/$ target. By facilitating a more streamlined and transparent process for foreign exchange transactions, EFEMs reduces opportunities for manipulation and arbitrage, promoting a more stable and predictable exchange rate.
Paragraph 3: Temporary Access to Forex for BDCs and Seasonal Demand
Recognizing the increased demand for foreign exchange during the holiday season, the CBN granted Bureau De Change (BDC) operators temporary access to the Nigerian Foreign Exchange Market (NFEM). This temporary measure, effective from December 19, 2024, to January 30, 2025, allows BDCs to purchase up to $25,000 weekly from authorized dealers. This move aims to address the retail demand for foreign currency and further stabilize the exchange rate during the festive period. BDCs are mandated to operate within a 1% spread on the NFEM rate, ensuring reasonable pricing for end-users.
Paragraph 4: Regulations and Reporting Requirements for BDCs
The CBN has implemented specific regulations to govern the temporary access granted to BDCs. Each BDC is permitted to purchase foreign exchange from only one authorized dealer of their choosing and must fully fund their account before participating in the NFEM. This requirement ensures that BDCs operate within their financial capacity and prevents speculative activities. Furthermore, all transactions conducted by BDCs must be reported to the CBN’s Trade and Exchange Department, enhancing transparency and oversight of the foreign exchange market. This strict reporting requirement allows the CBN to monitor market activity and ensure compliance with the stipulated regulations.
Paragraph 5: Appropriation Bill and Revised Exchange Rate Projections
The 2025 Appropriation Bill reflects the government’s optimistic outlook for the naira. The exchange rate projection in the bill was revised upward to N1500/$, up from the N1400/$ initially indicated in the Medium Term Expenditure Framework (MTEF) released in November. The MTEF had also projected an increase in crude oil production to 2.12 million barrels per day and a benchmark crude oil price of US$75 per barrel. These projections, coupled with an anticipated decline in inflation from 27.85% to 16.94%, underpinned the initial exchange rate target.
Paragraph 6: President Tinubu’s Budget Presentation and Economic Projections
During his budget presentation, President Bola Tinubu reiterated the government’s commitment to achieving the N1500/$ exchange rate target. This projection is based on the expectation that inflation will decline from the current rate of 34.6% to 15% in 2025. Additionally, the budget assumes a crude oil production of 2.06 million barrels per day. These economic projections, along with the ongoing foreign exchange reforms, form the basis for the government’s confidence in the naira’s continued appreciation. The revised exchange rate projection in the 2025 budget reflects the government’s positive outlook for the Nigerian economy.
