Nigeria’s Foreign-Exchange Woes Intensify with Prolonged Naira Decline

The Nigerian naira continues its downward spiral, making its ninth consecutive day of depreciation against the US dollar and the worst-performing currency in the first half of 2024.

The naira weakened by 0.2% to 1,510 per dollar by the close on Thursday, according to FMDQ.

This persistent decline represents the longest losing streak since July 2017, resulting in a year-to-date devaluation of 40%.

The naira’s performance stands out as the worst among global currencies tracked by Bloomberg, aside from Lebanon’s pound, which is undergoing severe economic turmoil and dollarization.

Analysts attribute the naira’s plunge to a combination of steep devaluation, insufficient dollar liquidity, and market volatility, which have hampered efforts to stabilize the currency.

“While the naira is undervalued and has seen significant adjustment, the supply of dollars needs to improve for the currency to be supported,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank Plc in London. “Portfolio inflows have yet to pick up, even amid still-attractive local rates.”

Nigeria has been grappling with chronic foreign-exchange shortages and instability, largely due to reduced crude oil production and a lack of economic diversification.

The local unit has lost approximately 70% of its value against the dollar since June 2023, following policy changes introduced by President Bola Tinubu’s administration aimed at attracting foreign inflows to revive the economy.

The currency experienced heightened volatility between mid-April and May, driven by the imbalance between demand and supply for the greenback.

However, this volatility moderated in June with an improvement in dollar inflows.

Central Bank Governor Olayemi Cardoso recently expressed optimism about the future stability of the naira.

“The currency’s volatility may be a thing of the past,” Cardoso stated, highlighting efforts to promote investor confidence.

Since assuming office in September, Cardoso has increased interest rates by 750 basis points to 26.25%, cleared a foreign-exchange backlog, and negotiated multilateral dollar inflows to support the naira.

Despite these measures, the naira’s decline underscores the challenges faced by Nigeria’s economy. The currency’s depreciation has been accompanied by inflationary pressures, complicating monetary policy efforts and economic planning.

Besides the naira, other African currencies such as Egypt’s pound and Ghana’s cedi have also been among the world’s worst performers in the first half of 2024.

“Adjustment and rebalancing in 2024 after years of a heavily managed and misaligned currency regime account for the weakening of these currencies,” Gadio noted. For the naira, “what will matter going forward is whether it can stabilize on improving foreign-exchange inflows and perhaps see some appreciation.”

The ongoing decline of the naira highlights the urgent need for comprehensive economic reforms and effective foreign-exchange management to restore confidence in the currency and ensure sustainable economic growth. As Nigeria navigates these challenges, the path to stabilization remains fraught with uncertainty.