Chatham House, a leading UK-based international affairs think tank, has hailed President Bola Tinubu’s economic reforms as Nigeria’s most promising path to sustainable growth in 25 years.
However, the organization warned against excessive strengthening of the naira, emphasizing that maintaining a competitive exchange rate is crucial for long-term economic stability.
In an article titled “Nigeria’s Economy Needs the Naira to Stay Competitive,” Chatham House acknowledged the significant challenges facing Nigeria, including a sharp depreciation of the naira, rising inflation, and increased poverty levels.
Despite these difficulties, the think tank argued that Tinubu’s reforms, particularly the devaluation of the naira from N460/$ to about N1,500/$, have positioned the country for its most competitive economic environment in decades.
David Lubin, a Senior Research Fellow at Chatham House and former Head of Emerging Markets Economics at Citi, authored the article. He noted that while Nigerian voters may feel disillusioned two years into Tinubu’s presidency—given the naira’s collapse, quadrupled petrol prices, and an 80% rise in food prices—the administration’s reforms offer the best hope for sustainable growth.
“At the centre of the reforms has been Tinubu’s decision to allow a very substantial devaluation of the naira, which has fallen from N460 to the dollar around the 2023 election to just below N1,500 now,” the article stated. “Nigeria’s currency adjustment is one of the largest anywhere for years: only the Ethiopian birr has seen a bigger move recently.”
Chatham House highlighted two major benefits of the naira’s depreciation: an improved balance of payments, now in surplus, and a resurgence of capital inflows. The Central Bank of Nigeria (CBN) has bolstered its foreign exchange reserves, which now exceed $40 billion—a critical buffer for financial stability in developing economies.
The think tank also pointed out that the naira’s devaluation has positively impacted Nigeria’s fiscal health. The removal of fuel subsidies and the currency adjustment have narrowed the fiscal deficit from 6.4% of GDP in early 2023 to 4.4% in early 2024. However, the article cautioned that the naira’s slide has fueled inflation, which reached 35% by the end of 2024. Although inflation reportedly dropped to 24.5% in January 2025 due to revisions in the Consumer Price Index (CPI), it remains a significant challenge.
Chatham House warned against relying on a stronger naira to combat inflation, as this would undermine the competitiveness gained through devaluation.
“A currency that stays competitive is a necessary—although by no means sufficient—condition to encourage more productive capital to enter the country,” the article stated. It emphasized the need for structural reforms, including improving electricity supply, tackling corruption, reducing red tape, and ensuring contract sanctity to attract foreign direct investment (FDI).
Instead of focusing on currency strength, the think tank recommended two strategies to tackle inflation: improving the monetary transmission mechanism and raising public revenues. While the CBN’s policy interest rate stands at 27.5%, deposit rates in Nigerian banks remain around 10%, benefiting banks at the expense of depositors. Higher deposit rates could help curb inflation, promote financial inclusion, and mobilize domestic savings.
Additionally, Chatham House stressed the importance of increasing government revenues, which currently stand at less than 10% of GDP—far below the sub-Saharan African average of 14%. The think tank praised the government’s focus on revenue generation but underscored its critical role in reducing inflation without sacrificing the naira’s competitiveness.
In conclusion, Chatham House urged Nigerian policymakers to resist the temptation to let the naira strengthen excessively.
“The path to a more capital-rich, more diverse Nigerian economy can only be built on a competitive naira,” the article maintained. By maintaining a balanced approach to exchange rate management and implementing structural reforms, Nigeria can unlock its economic potential and achieve sustainable growth.
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