Naira to Suffer Additional Devaluation, According to MTEF Report

The Federal Ministry of Finance, Budget and National Planning said the Nigerian Naira may suffer further devaluation against the US dollar given the present economic situation.

In the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report, the ministry said the nation is expected to lose around US$26 billion in oil revenue this year, a situation projected to substantially hurt the central bank’s ability to intervene in the foreign exchange market and further weigh on the Naira value.

The MTEF report said “The official exchange rate has also been adjusted upwards to N360/US$1 by the Central Bank of Nigeria (CBN). At the Importers & Exporters Foreign Exchange (IEFX) window, where the bulk of foreign exchange transactions are consummated, the exchange rate recently depreciated from about N362/US$1 in January 2020 to over N385/US$1.

“While the CBN continues to make strenuous efforts to stabilize the exchange rate, it is generally expected that the Naira will suffer further devaluation as Nigeria is projected to lose about US$26 billion in oil revenues, its principal source of foreign currency.”

Also, emphasis was placed on the nation’s weak foreign reserves.

According to the report, while Nigeria’s current foreign reserves of $36 billion is enough to support imports for seven months, weak revenue generation amid low oil prices may impede liquidity availability.

This was after President Muhammadu Buhari said the nation suffered a moderate economic decline during the peak of the COVID-19 pandemic when compared to the rest of the world.

The president said “We have witnessed eleven quarters of consecutive GDP growth since exiting recession. The GDP grew from 1.91% in 2018 to 2.27% in 2019 but declined to 1.87% in the first quarter of 2020 as a result of the decline in global economic activities due to the COVID-19 pandemic.

“Every single economy in the world has suffered a decline. Ours has been relatively moderate.

“In order to stabilize the economy, the Monetary Authority took steps to build the external reserves which resulted in improved liquidity in the foreign exchange market. The external reserves grew from $33.42 billion on April 29th 2020 to about $36.00 billion in May, 2020 which is enough to finance seven months of import commitments.”

The Naira continues to trade at N450 against the US dollar on the black market despite the central bank setting its official exchange rate at N360 to a US dollar. This means except the nation’s foreign revenue picked up with moderate capital importation, Naira will continue to remain under pressure.