Nigeria has been grappling with a foreign exchange crisis but recent data offers a glimmer of hope, indicating a positive shift in the country’s economic outlook.
In June, Nigeria saw a significant influx of $1.41 billion into its currency market, a noteworthy development attributed to the central bank’s decision to eliminate the multiple exchange rate systems that were been used to artificially bolster Naira’s position against its global counterparts while the apex bank offset about $10 billion in deficit created by the systems yearly.
However, following President Bola Ahmed Tinubu’s decision to float the nation’s currency and rejig other key aspects of the economy, capital inflow rose with rising confidence in Nigeria’s economy.
This was evident in the difference between the $1.14 billion reported in the month of May, before the local currency was floated and the subsidy removed, and the $1.41 billion achieved in June.
The Nigerian currency market, which had once thrived with daily trades amounting to hundreds of millions of dollars, had been hampered by restrictions introduced in 2017. The ensuing dollar shortages were exacerbated by the departure of foreign investors due to plummeting oil prices.
Despite these challenges, the recent positive trend in FX inflows signals a turning point. However, there remain outstanding demands for dollars from foreign investors seeking repatriation and airlines looking to transfer proceeds from ticket sales abroad, which the central bank needs to address.
To cope with the shortage, some businesses and individuals have resorted to the unofficial black market, leading to a widening gap between the official and unofficial exchange rates. The naira, currently trading at a record low of 920 per dollar on the black market, stands in stark contrast to the official market rate of 771 naira per dollar.
The foreign exchange rate has gained even more significance for Nigerians due to the linkage between the dollar rate and the price of petrol. As the country’s economic prospects start to brighten, stakeholders eagerly await further developments, hoping for a sustained recovery that will alleviate the challenges posed by the foreign exchange crisis.
