The Nigerian naira has continued on its downward spiral, depreciating further to N1,520.123 against the dollar in the parallel market on Wednesday, according to data from the trading platform Naira Rates.
This marked a substantial decline from the N1,482.75 per dollar recorded in the official foreign exchange market (NAFEM) just a day earlier, representing a staggering N38 depreciation in less than 24 hours.
Tuesday’s depreciation was noteworthy as it marked the first instance, post-COVID-19, where the official exchange rate surpassed the parallel market rate. The parallel market had traded at N1,470 per dollar on Monday, up from N1,425.
The economic policies of President Bola Tinubu’s government were cited as a significant factor contributing to the further downward slide of the naira. The decision to float the currency, coupled with the scrapping of fuel subsidies and consolidation of multiple foreign exchange windows into the single Nigerian Autonomous Foreign Exchange Market (NAFEM), reportedly led to a drastic 98 percent depreciation in the naira’s value, according to a report by PwC.
Efforts by the federal government to boost foreign exchange liquidity have not been entirely successful. Late last year, the Nigerian National Petroleum Company Limited (NNPCL), on behalf of the government, secured a $3.3 billion emergency loan from the Import and Export Bank (Afreximbank) to address forex volatility.
Nigeria is currently grappling with over $7 billion in forex backlogs, further intensifying the naira’s free fall and creating an investment phobia for the nation’s economy. The Central Bank of Nigeria (CBN) has acknowledged disbursing over $2.5 billion to tackle the country’s FX challenges, including the recent release of $500 million announced on Monday to address the backlog of verified foreign exchange transactions across various sectors.
Despite these efforts, the backdrop of FX volatility has continued to impact severe economic consequences, with inflation surging to 28.20 percent in December. This has unleashed economic hardship on the Nigerian people, leading to a significant depletion of spending power since the FX reforms were introduced in June last year.
Facing this dire situation, economic experts have suggested proactive measures to address the economic challenges. Oluseun Onigbinde, Director of BudgIT and ForeFront, proposed the following measures to mitigate the impacts.
Emergency Fund Seeking: Exploring options such as securing an emergency fund from entities like Gulf Sovereign Wealth Funds, the International Monetary Fund (IMF), and global banks to curb the economic downturn.
Optimizing Onshore Oil Production: Implementing strategies to enhance onshore oil production and, if necessary, issuing new licenses to optimize the utilization of oil resources.
Rapid Non-Oil Export Strategy: Developing and implementing a swift strategy to boost non-oil exports, capitalizing on the current economic climate for diversification.
Fiscal Tightening: Exercising fiscal discipline by gaining control over public spending and reforming government culture, especially in addressing issues within the budget.
FX Policy Review: Reassessing the existing flexible foreign exchange (FX) policy and considering adjustments to certain metrics. Further details on this aspect may require additional data.
These proposed measures aim to stabilize the economic situation, enhance revenue streams, and address fiscal and monetary policies to promote economic resilience and sustainability.
