March 17, (THEWILL)- The Nigerian naira lost 241.12 percent of its value in the official market in nine months of devaluation between June 14, 2023 and March 14, 2024 – amid the rollercoaster ride it experienced during the period.
Following the floating of the currency in line with President Bola Tinubu’s “bold” market reforms, the naira which traded at N471.67 to a dollar on Tuesday June 13, plunged to N664.04 to a dollar on Wednesday June 14, the first day of the devaluation.
This translated to a 40.78 percent depreciation in one swoop in the official window, while the parallel market dropped from N500 to a dollar to N768 to a dollar.
Nine months after the unification of the foreign exchange market, and floating of the naira, the domestic currency traded at N1,608.98 to a dollar in the official market on Thursday, March 14, 2024, representing a value loss of 241 percent. The parallel market rate closed at N1,605 per dollar.
During the nine months, the naira plunged to the deepest spot of N1,665.50 to a dollar on February 23, 2024 while the highest turnover of $465.29 was recorded on February 6, 2024 as the Central Bank of Nigeria (CBN) accelerates efforts to boost liquidity in the market.
This is by way of massive borrowing, including the $3.3 billion emergency crude repayment loan secured from Afreximbank by the Nigerian National Petroleum Company Limited (NNPCL) in August 2023 to support the naira and stabilise the foreign exchange market.
The Federal Government also plans a $1 billion euro bond sale by June 2024, while it also battles the fiercely rising inflation that has created huge challenge for businesses and households as prices of goods and services soar alarmingly.
Inflation hit 31.70 percent in February 2024 from 29.90 percent in the preceding month and 21.91 percent in February 2023, according to the latest report by the National Bureau of Statistics.
The astronomical rise in inflation rate, driven majorly by high price of food, occurred after the CBN had conducted its first Monetary Policy Committee (MPC) meeting on February 26 and 27, where it announced a jumbo hike in interest rate by an unprecedented 400 basis points from 18.75 percent to 22.75 percent.
The devaluation-induced high inflation has hit every sector of the economy resulting in loss of employment and rise in misery index among the citizens.
For instance, the Manufacturing Association of Nigeria (MAN) in its recent report revealed that over 760 manufacturing companies shut down operations while 335 experienced distress in 2023, leading to N350 billion unsold goods.
The group attributed the disturbing development to various economic difficulties, including exchange rate volatility, rising inflation, and a general worsening of the investment climate.
Amid the poor economic climate with weak productive base, experts predict tougher times for the country, with increased borrowing as the way out.
The Economist Intelligence Unit (EIU) in its latest Country Report on Nigeria, highlighted the precarious position of the naira amidst rising inflation and policy decisions that may further affect the currency’s stability.
The report read: “For most of this year, the naira will be highly volatile, leading to regulatory erraticism that can affect businesses, especially those holding foreign currency.
“The CBN lacks the liquidity to support the naira itself; out of US$33bn in foreign reserves, a large share (estimated at nearly US$20bn), is committed to various derivative deals.”
The EIU also suggests that foreign borrowing will be essential to rebuild the CBN’s reserves, clear backlogs of unmet foreign exchange orders, and restore confidence in the naira.”
It further stated: “Our view is that it will take foreign borrowing to rebuild the CBN’s buffers, fully clear a backlog of unmet foreign exchange orders and restore confidence. This is probably only achievable towards the end of 2024.”
Notably, Nigeria has already taken steps in this direction, securing a $3.3 billion loan from the African Export-Import (Afrexim) Bank and a $1 billion loan from the African Development Bank, with an additional $1.5 billion sought from the World Bank..
Following a significant devaluation in early February, further depreciation is expected due to persistently high inflation and negative real short-term interest rates.
However, the report holds a balanced forecast, predicting an end-2024 rate of N1,770/$1. It anticipates a volatile year for the naira, with potential regulatory changes that could impact businesses, especially in the face of foreign currency holdings.
The report underscores the dilemma faced by the CBN, noting that despite an increase in the policy rate in February, the overarching economic goals set by President Bola Tinubu, including a notable aversion to high-interest rates and the ambition to double GDP by 2031, may hinder the necessary monetary tightening to attract foreign investors.
This scenario is exacerbated by high inflation rates, eroding the real value of short-term interest rates and potentially leading to higher unemployment if aggressive monetary policies are adopted.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
