Naira Slides Despite Government Efforts

In the realm of Nigeria’s foreign exchange landscape, President Bola Tinubu’s ambitious reforms have sparked both anticipation and skepticism.

Despite the high hopes pinned on these measures, their implementation has come under intense scrutiny, yielding mixed results.

The Nigerian naira’s journey against the US dollar tells a tale of volatility and depreciation. Within a span of just one year under Tinubu’s administration, the naira has weakened significantly, marking a 65% depreciation against the greenback at the official market.

This downward trajectory, underscored by two de facto devaluations orchestrated by the Central Bank, paints a picture far from the desired outcome.

According to data sourced from the FMDQ Securities Exchange Limited, the naira plummeted from N463 per dollar in May 2023 to N1,339 per dollar as of May 27, 2024. These figures stand as stark reminders of the challenges confronting Nigeria’s currency stability.

Former Nigerian President Olusegun Obasanjo, a vocal critic of Tinubu’s reforms, minced no words in expressing his discontent. He pointed out flaws in the removal of petrol subsidies and the unification of FX windows, emphasizing that while these decisions were necessary, their execution left much to be desired.

In Obasanjo’s words, “Today, the government has taken three decisions, two of which are necessary but wrongly implemented and have led to the impoverishment of the economy and of Nigerians.”

The ramifications of these reforms extend beyond official channels to the parallel market, colloquially known as the black market. Here, the naira has experienced a staggering 49.47% depreciation against the dollar over the past year, further exacerbating concerns about economic stability.

Initial optimism following the Central Bank’s efforts to settle foreign exchange obligations and enhance pricing transparency was short-lived. Despite these measures, the naira continued its downward spiral, propelled by a combination of factors including soaring inflation rates and dwindling external reserves.

Charlie Robertson, head of Macro Strategy at FIM Partners UK Limited, shed light on Nigeria’s economic predicament, attributing the country’s currency woes to a delayed reckoning with economic realities. He noted the absence of external support, akin to IMF programs adopted by other nations facing similar challenges, leaving Nigeria to navigate the tumultuous terrain alone.

However, Robertson remains cautiously optimistic about Nigeria’s prospects, citing enacted policies aimed at bolstering the economy. He predicts that a competitively priced naira coupled with improved FX liquidity will pave the way for economic recovery.

Chinazom Izuora, a senior associate at Parthian Securities, echoed similar sentiments, acknowledging the well-intentioned nature of Tinubu’s reforms while highlighting implementation hurdles. She emphasized the importance of stakeholder engagement, policy alignment, and systematic coherence in effecting lasting change.

Despite these setbacks, the Central Bank’s reform agenda persists, encompassing a spectrum of measures from FX market liberalization to BDC segment restructuring. President Tinubu’s commitment to overhauling the monetary landscape remains unwavering, as evidenced by recent appointments and policy adjustments.

Since assuming office, CBN Governor Olayemi Cardoso has spearheaded efforts to address FX demand, augment dollar supply, and stabilize the naira. While challenges persist, Nigeria’s journey towards economic resilience continues, guided by a vision of sustainable growth and stability.