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The naira has continued its free fall despite the release of $500 million by the Central Bank of Nigeria (CBN) to clear part of the backlog of the foreign exchange (FX) that has accumulated so far. Last week, the naira extended its slide against the United States dollar and other major foreign currencies. At the Import and Export (I & E) window, the naira plunged to a fresh low of N1,482/$, down from N1,358.63/$ a week earlier.
The value of the national currency depreciated much worse at the parallel market at N1,500/$. Although the naira reportedly found some relief at the weekend following reports that deposit money banks offloaded excess dollars in their vaults as a result of the Central Bamk of NIgeria’s February 1 deadline to sell Forex holdings, concrete steps are needed to halt the depreciation of the naira. The banks allegedly hoarded $5 billion, thereby creating acute shortage of the dollar in the FX market.
However, the reprieve has not helped much. The free fall of the naira has raised concerns that the economy may not recover quickly. The development will make Nigeria unattractive for foreign investors, and difficult to repatriate earnings due to severe shortage of foreign exchange. It appears that the CBN’s approach to stabilise the naira is not working effectively. There is need for more decisive measures to halt the slide of the naira.
The CBN can seek advice from experts on how to solve the problem. The apex bank should embark on long-term structural reforms that must prioritise diversifying the economy and export-oriented industries. The reliance on crude oil proceeds is no longer helpful. Though the FX market seemingly holds so much promise for the CBN towards stabilising the value of the naira, it should address other fundamental issues plaguing the economy. We believe that Nigeria’s export productivity base has been neglected for a long time, and that can explain the free fall of the naira. The problem with the naira is not really that it has been ‘floated’, the major problem is that the government put the cart before the horse. Until these fundamentals are addressed, there may be little hope for the naira. Beyond this, President Bola Tinubu should muster the political will to allow competent hands to manage the economy.
To halt the tumbling of the naira and shore up its value, the government must address the general economic hardship in the country. Let the government come out with critical economic decisions that will stimulate growth. For example, last year, the Nigerian National Petroleum Company Limited (NNPCL) secured $3 billion loan from the African Export-Import Bank (Afrieximbank) to enhance the liquidity of the Forex market and halt the naira slide. The loan will be funded through crude oil swap to be delivered to the lender over a period of time. The transparency of the deal has been questioned by former vice president, Atiku Abubakar. Yet, the government has not offered convincing explanation on that.
No doubt, the economy is in dire straits. Soaring inflation is pushing the naira value even lower. The result of shortage of Forex has widened the difference between the official and parallel exchange rates. This has further worsened Nigeria’s massive fuel importation which gulps about $20 billion every year, raising the price of fuel to N750/litre in many states.
For instance, the unification of the exchange rates has not achieved the desired result primarily because the government did not first take care of the supply side of the market before pushing the implementation. This has resulted in the present panic created by currency speculators. The backlash on the economy has been evident. We believe that the value of naira may continue to depreciate as long as forex shortage remains unresolved. Our import-driven economy is having its toll on the country’s foreign reserves. Nigeria’s external reserves lost $167.2 million in July 2023.
Figures from the CBN showed that the reserves which ended June 30, 2023, at $34.12 billion fell to $33.95 billion as of July 28, 2023. A recent report by PricewaterhouseCoopers (PwC) said that the value of the naira has depreciated by as much as 98 per cent due to the decision of the federal government to collapse the FX market into the I &E window. PwC said the naira’s drastic fall took place within a seven month period, spanning May to December, 2023. This means that the CBN exceeded the limit placed on its lending to the federal government, totaling N22.7 trillion through Ways and Means (W & M) during the last administration of Buhari. Moving forward, let the government address all the challenges hampering the economy and save the nation’s currency from further slide.
