As of May 2025, Nigeria finds itself at a crucial economic crossroads, grappling with the dual challenge of managing currency exchange rate fluctuations and soaring fuel prices. These two economic indicators not only reflect broader fiscal and monetary policies but also significantly influence inflation, business performance, and household welfare across the country.
This blog post offers an in-depth analysis of the current naira exchange rate, the recent increases in petrol prices, how these factors interact, their socioeconomic implications, and the steps the Nigerian government is taking to mitigate their impact.
Naira Exchange Rate in 2025: Stability After Storm
Current Status
The Nigerian naira, which witnessed major shocks in 2023 and 2024 due to two significant devaluations, has started to experience a semblance of stability. As of mid-May 2025, the exchange rate ranges between ₦1,600 and ₦1,607 per US dollar. This stability is a notable improvement compared to the turbulence of the past two years and reflects efforts by the Central Bank of Nigeria (CBN) and fiscal authorities to anchor the naira to more realistic and sustainable levels.
Key Drivers of Stability
Several interrelated factors have contributed to the current relative calm in the foreign exchange market:
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Proactive Central Bank Measures:
The CBN has adopted a more pragmatic approach, injecting US dollars into the market at strategic intervals to meet demand and smoothen volatility. -
Foreign Exchange Reforms:
One of the most impactful moves was the liberalization of the foreign exchange market. The reforms eliminated multiple exchange rate windows and allowed the market to determine the exchange rate more organically, which has helped build investor confidence. -
Increased Foreign Reserves:
Nigeria’s foreign reserves have surpassed $37 billion, providing the CBN with a buffer to defend the naira when necessary. -
Improved Fiscal Discipline:
By tightening tax collection mechanisms and cutting back on wasteful subsidies, Nigeria has reduced its budget deficit from 5.4% of GDP in 2023 to just 3% in 2024. This improvement has helped stabilize macroeconomic expectations and reduce pressure on the naira.
Outlook for the Naira
While the short-term outlook appears encouraging, sustainability remains a concern. Analysts project the naira could trade around ₦1,638 by the end of Q2 2025. Factors such as external shocks, oil revenue volatility, and foreign investor sentiment will play a key role in determining the naira's trajectory.
Fuel Price Surge in Nigeria: What’s Happening?
The State of Petrol Prices
Following the complete removal of petrol subsidies in 2023, fuel prices in Nigeria have risen sharply. In May 2025, the price of Premium Motor Spirit (PMS) stands between ₦860 and ₦900 per litre at most filling stations. In some states and black-market zones, prices have climbed even higher to around ₦970 per litre.
This rise represents a dramatic shift from the era when subsidies kept petrol prices artificially low, leading to fiscal strain but masking the real cost of fuel.
Why Are Prices Rising?
Several factors have contributed to the persistent upward trend in fuel prices:
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Global Crude Oil Prices: As Nigeria still imports refined petroleum products, any increase in global crude prices directly impacts local fuel costs.
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Weak Local Refining Capacity: Despite being Africa’s largest oil producer, Nigeria relies heavily on imports due to underperforming refineries.
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Exchange Rate Pass-Through: A weaker naira against the dollar makes imported fuel more expensive in naira terms, despite recent exchange rate stability.
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Removal of Government Subsidies: The removal of fuel subsidies was meant to ease the government’s financial burden, but it has also transferred the full cost of fuel to consumers.
Economic and Social Implications
Rising Cost of Living
The most immediate consequence of higher fuel prices is increased transportation costs. Public transport fares have surged, affecting daily commuters and leading to higher logistics costs across all sectors. This has, in turn, pushed up the prices of food, goods, and services — further stoking inflation.
Struggles for Small Businesses
Small and Medium Enterprises (SMEs), the backbone of Nigeria’s economy, are bearing the brunt of the rising fuel costs. From increased delivery charges to higher generator fueling costs, business expenses have skyrocketed. Many businesses face tough choices between passing costs to customers or cutting operations.
Public Sentiment
The economic burden has left many Nigerians frustrated. There is growing pressure on the government to provide relief — either through wage increases, transportation subsidies, or price stabilization mechanisms.
Government Response and Mitigation Strategies
Compressed Natural Gas (CNG) Initiative
In an effort to offer a sustainable alternative to petrol, the federal government has rolled out an ambitious plan to promote the use of Compressed Natural Gas (CNG). As of now, CNG is priced around ₦230 per litre — significantly cheaper than petrol. The government plans to convert 150,000 vehicles to CNG before the end of 2025, with a target of 1 million vehicles by 2027.
This initiative is expected to ease pressure on petrol demand, reduce costs for transporters, and offer a more environmentally friendly option.
Encouraging Local Refining
There is renewed focus on ramping up local refining capacity, particularly through public-private partnerships. The Dangote Refinery, which began limited operations in early 2024, is expected to increase domestic refining output significantly by the end of 2025.
Fiscal Support Measures
To cushion the effect of subsidy removal, the government is considering direct cash transfers to vulnerable households and investment in infrastructure that will help reduce energy costs in the long term.
The Link Between Exchange Rates and Fuel Prices
The naira’s exchange rate and fuel prices are inextricably linked. A depreciated naira makes the importation of fuel more expensive, which then drives up the pump price. On the other hand, a stable or appreciating naira can reduce importation costs, potentially easing pressure on fuel prices.
Therefore, achieving long-term naira stability is critical for controlling fuel price volatility and inflation.
Conclusion: A Critical Economic Balancing Act
Nigeria’s economic future depends on how effectively it can navigate the dual pressures of exchange rate management and rising fuel prices. While recent policy measures have helped bring a degree of stability to the naira and introduced a path toward fuel alternatives like CNG, more work remains.
The government must continue to invest in energy infrastructure, deepen forex market reforms, promote local refining, and protect the most vulnerable from the harsh impacts of inflation.
Ultimately, striking a balance between market realities and social welfare is the only way forward for a more stable and prosperous Nigerian economy.
