One of the world’s leading financial institutions, Bank of America (BoA) on Tuesday predicted an additional 20% decline in the value of the Nigerian Naira against its global counterparts in 2023.

This, the bank attributed the operation of the parallel market. According to Tatonga Rusike, an economist with the Bank of America, the wide exchange rate of the parallel market (black market) would pressure the central bank to adjust its exchange rate to N520 against the United State Dollar, up from the current rate of N436.98.

He said the three indicators which include the widely-used black-market rate, the central bank’s real effective exchange rate, and “our own currency fair value analysis” shows that the naira will weaken further against the dollar in 2023.

“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as N520/$,” Rusike stated in a note to clients.

Rusika also noted that Nigeria’s naira will come under increasing pressure “due to limited government external borrowing”. This will drastically reduce the inflow of foreign currency into Nigeria. 

Nigeria’s external debt rose to $40.1 billion in August 2022, a level predicted to limit the country’s ability to source for new external borrowings. 

Additionally, Nigeria has the obligation to serve its debt which will require more demand for the American dollar. For instance, between January and March 2022, Nigeria spent $694.01 million on debt servicing. 

Besides, analysts have expressed concerns about the impact of the 2023 elections on the value of the Naira against the U.S. Dollar. Nigerian politicians have a culture of spending in foreign currency during the election season which often raises the need for dollars. 

For instance, during the primary elections conducted at the end of May and early June, the demand for the dollar at both official and black markets rose to a new height as politicians mopped up the greenback for electioneering campaigns.

Investors King had earlier reported that political parties in Nigeria are expected to spend billions in the next year’s elections as INEC officially lifts the ban on political activities. 

Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co also buttressed the same sentiment. 

He said “what we are seeing is not different; it is something we see every election cycle. Election period often witnessed a high demand for foreign exchange because of the ease in moving election fund”.

Similarly, the Managing Director of Morgan Capital Securities Limited, Rotimi Olubi stated that 2023 general elections will cause Foreign Portfolio Investors (FPIs) to remain on the sidelines.

Due to the uncertainty associated with elections, especially in the African continent, investors often reduce or halt their investment to be on the safer side until after the election.