AfDB Warns of Naira Depreciation in 2025, Predicts Steep Trends For Other African Currencies

• The African Development Bank’s 2025 economic outlook predicts that several African currencies, including Nigeria’s naira and Ghana’s cedi, may decline
• Some currencies, such as the Kenyan shilling and Moroccan dirham, are expected to appreciate thanks to stronger market sentiment and reforms.
• The report highlights that domestic challenges like fiscal deficits and political instability also contribute to currency pressures

Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.

The African Development Bank's (AfDB) 2025 economic outlook sees a possible reduction in export earnings predicted to force a decline in several African currencies this year, including the naira in Nigeria and the cedi in Ghana.

According to the Abidjan-based lender, if financial markets become unstable due to global uncertainties, 21 of the 54 African countries are expected to witness a decline in their currencies in 2025, while 25 may see modest gains.

“Several countries—Egypt, Ethiopia, Ghana, Libya, Nigeria, Rwanda, Zambia, and Zimbabwe—are expected to experience currency depreciations of 6 percent or more,” AfDB said in its report released on Wednesday.

“The depreciation in most of these countries will be driven by the potential decline in export earnings, which could put upward pressure on national currencies.”

Some currencies to appreciate

However, the African-focused lender noted that some nations, such as Kenya, Morocco, and those in the CFA franc zone, may see currency appreciation of more than 3% against the US dollar.

Particularly strong performers on the continent have been the Kenyan shilling and the South African rand. The rand recovered those losses, increasing by 0.7 percent annually after depreciating by 11.3 percent in nominal terms in 2023.

The report claimed that the Kenyan shilling recovered 15.4 percent of its losses in 2024 with an appreciation of 3.1 percent.

Following the successful issuance of $1.5 billion in Eurobonds to buy back the $2 billion Eurobond maturing in June 2024, the shilling was supported by improved market sentiment. This resulted in a 121 percent increase in portfolio investment inflows, reversing net outflows of $233.4 million recorded in June of the previous year.

Nigerian naira

Slowing oil prices could be a negative risk for Africa's largest oil producer, whose currency has experienced sharp devaluation since President Bola Tinubu lifted long-standing currency regulations and allowed the naira to float.

After the central bank implemented a series of reforms to restore lost trust and openness in market operations, the naira, which had lost over 40% of its value the previous year, started to recover.

With FX market volatility falling from 4% to less than 0.5 percent and reserves increasing as a result of higher investor returns and greater transparency, CBN Governor Yemi Cardoso stated this month that monetary orthodoxy is starting to show benefits.

Despite the global unpredictability that has caused developing market currencies to struggle due to President Donald Trump's sweeping tariffs, the naira is also rising, ranging between 1,588 and 1,611 per dollar this month.

“While exchange rate pressures have been largely driven by global factors, domestic challenges—such as misaligned foreign exchange regimes, fiscal deficit monetization, political instability, and low productivity—have also played a significant role,” AfDB said, adding that African nations must address these structural issues to further strengthen domestic macroeconomic fundamentals.

Nigeria, China sign deal to reduce dollar dependence

Legit.ng reported that the Nigeria-China Strategic Partnership has disclosed that Nigeria would soon ink a deal on Digital RMB with China to allow a direct conversion of naira to Chinese Yuan.

The digital renminbi (RMB) is a central bank digital currency issued by the Chinese apex bank, the People’s Bank of China.

The Director-General of the NCSP, Joseph Tegbe, disclosed that the deal was expected to reduce Nigeria’s dependence on the US dollar.

Source: Legit.ng