The Naira has shown remarkable stability against the US dollar since late 2024.
After extreme volatility with rates spiking above $1: N1,600 in early 2025, the official exchange rate has settled in the $1: N1,350–1,430 range by May 2026, with daily volatility dropping sharply from over 4% in 2024 to around 0.5%. This is one of the most significant positive macro developments in recent years.
While improved FX liquidity and CBN reforms played a role, one project stands out as a major structural driver: the Dangote Petroleum Refinery.
The 650,000 barrels per day refinery has fundamentally altered Nigeria’s foreign exchange demand profile.
It delivers measurable relief to the country’s fiscal position.
This reduction in FX demand for fuel imports has directly eased pressure on the Naira. Analysts refer to it as the “Dangote Effect”.
Lower import needs mean less reliance on CBN interventions and reduced vulnerability, which should reassure investors and policymakers about Nigeria’s economic resilience.
Impacts on debt, deficit financing
The question is: how is this stability actually affecting Nigeria’s fiscal numbers—debt, deficit financing, borrowing needs, and trade?
Nigeria’s external debt, roughly 30–35% of total public debt outstanding, is denominated in US dollars. A more stable and stronger Naira directly lowers the cost of servicing that debt.
In 2025, Nigeria spent approximately $5.21 billion on external debt service. Under the new floating exchange rate policy in early 2024, this would have translated into a much higher Naira burden.
The recent stability has kept the Naira equivalent more predictable and relatively contained. In the 2026 Federal budget, debt service is still projected at a massive N15–16 trillion. Still, the exchange-rate risk component has been meaningfully reduced.
This is not trivial. Every 100 Naira depreciation against the dollar adds billions of Naira to the annual debt service bill. Stability, therefore, frees up some fiscal space, even if only modestly, and reduces the risk of sudden budget blowouts caused by currency shocks.
A stable Naira reduces the need for CBN interventions using the BDCs or heavy domestic borrowing to defend the currency. It supports investor confidence, helping attract more foreign portfolio inflows and easing pressure on the domestic bond market.
Lower fuel import costs reduce the overall import bill, easing pressure on the Federation budget and Naira and indirectly supporting debt service. The crude import bill is rising, but this is offset by additional revenue from taxes on refined product exports and from potential polypropylene and linear alkyl benzene production as the Dangote refinery expands.
Deficit problem remains
However, the core deficit problem remains large. The 2026 budget still shows a deficit of around N23–24 trillion, with total new borrowing planned at N29 trillion. Stability helps manage the existing stock of debt. Still, it does not magically close the wide gap between revenue and expenditure. The government is still borrowing heavily to finance recurrent spending and infrastructure.
Nigeria has continued to record strong trade surpluses, partly because a more stable exchange rate has not undermined export competitiveness as much as feared, while reducing the cost of essential imports.
A stronger Naira makes imports cheaper in Naira terms. This has two important effects: It eases imported inflation, especially raw materials, machinery, and refined petroleum. It also supports import-substitution industries. The Dangote Refinery, for example, benefits enormously from predictable and relatively stable FX — it can plan long-term without the fear of sudden Naira crashes disrupting feedstock or spare parts imports.
Nigeria recorded a record trade surplus of N17.78 trillion in 2025, with the refinery cited as a major contributor through import substitution and early exports. By reducing crude-for-fuel swaps and outright imports, the refinery has narrowed the current-account deficit and supported foreign reserve accumulation (reserves rose from $32.6 billion to $33.8 billion in the period following ramp-up).
Bottom line
Naira’s stability since late 2024 has lowered certain fiscal risks, improved planning, and given the government some breathing room. The CBN under Governor Cardoso deserves credit for the FX reforms that contributed to this outcome. But stability is a platform, not a solution. Nigeria’s fundamental fiscal challenges remain, presenting an opportunity for meaningful reform.
Debt service still significantly crowds out capital expenditure. Non-oil revenue collection is still too low. Oil revenue volatility has not disappeared. Nigeria still has very large deficits financed by heavy borrowing.
In other words, a stable Naira makes the existing problems more manageable. Still, it does not fix the underlying revenue-expenditure imbalance or the structural weaknesses in the economy. It should be seen as an opportunity rather than a victory.
The government must use this window of relative calm to aggressively grow non-oil revenues, improve spending efficiency, and gradually reduce reliance on borrowing. Stability has bought Nigeria time. The real test is what Nigeria does with that time, which can inspire policymakers and investors with a sense of purpose and urgency.
Kalu is a Certified Financial Education Instructor and astute professional with extensive experience in capital market operations, Treasury, investment, asset management, and occupational pension services.
