By Chinwendu Obienyi
Amidst the scarcity of foreign exchange, investigations done by Daily Sun reveal that the dollar in the parallel market now goes by N786/$1.
This was even as experts revealed that if nothing is done urgently to stem the scarcity of FX, the dollar might hit almost N1000/$1 before the end of the year.
An increase in oil theft and a lack of offshore investors means that Nigeria has been unable to earn enough forex, a development that has consequently reduced the liquidity of foreign currencies in the Nigerian currency market.
A recent report stated that about 700,000 barrels of oil per day is lost due to the activities of vandals, which amounts to daily losses of about $60 million for Nigeria. As a result, the FG was forced to break the Fiscal Responsibility Act by having to borrow N8.80 trillion to cover the budget deficit in 2023.
Just last week, the Central Bank of Nigeria (CBN) announced it was replacing the N200, N500 and N1000 naira notes targeting corruption and insecurity. The decision has had an immediate impact on the exchange rate even as the naira fell to N775/$1 shortly after the announcement.
Also, Nigeria’s FX reserves declined for the eighth consecutive week, falling by $67.22 million week-on-week (w/w) to $37.49 billion (October 26). The naira depreciated by 0.7 per cent to N444.75/$1 at the I&E window. Furthermore, the country’s Euro bond yields are yet to hit junk status with the 10-year bond yield falling to about 14.2 per cent as of October 28, 2022. With bond yields this high, it is unlikely the government can augment its forex needs from the bond market.
The country’s high borrowing cost and rising debt burden are inevitable in the efforts by the government to shore up much-needed revenues which have dwindled over the years. However, the implication is that the cost of borrowing is higher and debt service effectively eats into every kobo of revenue received.
The lack of dollars and the cumbersome procedures by which many deposit money banks (DMBs) handle their offshore operations have continued to hurt local businesses that rely on forex to fund raw material imports and pay for services who now resort to the black market to source forex at rates that have contributed to a rise in the country’s inflation rate.
According to Abdulazeez Kuranga, an analyst with Cordros Research, the impact of the currency redesign will have positive and negative impacts on the economy.