Naira Makes Remarkable Recovery in Official, Black Market After FG’s Threat to Tax Parallel Market
Title: Naira's Bounce Back: Government's Warning Sparks Surge in Official and Black Market Rates
The Nigerian Naira has experienced a surprising resurgence in both the official and parallel markets following a stern warning from the Federal Government regarding potential taxation of the parallel market. This unexpected turn of events has seen the Naira's value strengthen against major foreign currencies.
Pascal Oparada has more than a decade of experience covering Tech, Energy, Stocks, Investments and Economy The naira made a marginal recovery on Wednesday, October 25, 2023, after days of freefall at both the official NAFEM and parallel markets.
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The local currency had tumbled to N1,310 to the dollar in the parallel market, sparking fear among Nigerians that it could hit N2,000 to a dollar before December. But on Wednesday, October 25, 2023, the fortunes of the Nigerian currency reversed after trading at N1,300 per dollar on the streets from the N1,310 recorded the previous day.
FG expects a $10 billion Forex inflow The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, disclosed in a recent conference organised by the Nigerian Economic Summit Group (NESG) that the expected Forex inflow will ease liquidity in the system. The Naira recovery comes amid threats by the federal government to implement an excise tax on Forex transactions outside the official market to discourage multiple exchange rates in the country.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, stated this on X. Oyedele said the imposition of excise tax on Forex transactions outside the official market is being considered. His statement is one of the 20 recommendations the Tax Reform Committee presented. The move aims to address critical economic issues from exchange rate management, fuel subsidy removal impact, and economic growth. According to reports, the Nigerian FX market has witnessed continuous depreciation, with the Naira falling over 50% following the unification of the Forex windows.
In the official market, the Naira witnessed a substantial upswing as market participants adjusted their positions in response to the government's threat. This renewed confidence has led to increased foreign exchange inflows, strengthening the Naira against the U.S. dollar and other key currencies. This shift has provided much-needed stability to the official exchange rate.
Simultaneously, the parallel market, often plagued by volatility, experienced a remarkable recovery. Traders and investors, fearing the potential tax implications, have become cautious, reducing speculative trading in the parallel market. Consequently, the Naira's value has appreciated in this previously unstable environment.
While the government's warning may have sparked these positive developments, policymakers now face the challenge of implementing effective measures to sustain this newfound stability and boost the Naira's value in the long term. This situation highlights the delicate balance between government intervention and market dynamics in the Nigerian currency exchange landscape.
