ENUGU, Nigeria (VOICE OF NAIJA)- In a recent report titled ‘Africa’s Pulse: An Analysis of Issues Shaping Africa’s Economic Future (October 2023 | Volume 28),’ the World Bank has characterized the Nigerian naira as one of Africa’s worst-performing currencies.
According to the report, the naira has depreciated by nearly 40 per cent against the US dollar since a mid-June devaluation.
The report further reveals that in 2023, the Nigerian naira and the Angolan kwanza have experienced substantial declines, with both currencies witnessing a year-to-date depreciation of nearly 40 per cent. The naira’s decline was attributed to the central bank’s decision to remove trading restrictions on the official market.
The report also highlights other African currencies with significant losses in 2023, including South Sudan (33 per cent), Burundi (27 per cent), the Democratic Republic of Congo (18 per cent), Kenya (16 per cent), Zambia (12 per cent), Ghana (12 per cent ), and Rwanda (11 per cent).
The central bank’s directive to Deposit Money Banks in June 2023 to remove rate caps on the naira at the official Investors and Exporters’ window of the foreign exchange market led to the naira’s fall from N473.83/$ to approximately N800/$ officially.
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The report notes that the parallel and official exchange rates of the naira had diverged significantly from March 2020 until June 2023.
The Central Bank’s efforts to limit foreign exchange demand and maintain an artificially low exchange rate were hampered by declining FX supply from oil revenues, resulting in an 80 per cent parallel rate premium in November 2022 and approximately 60 per cent in June 2023.
The report emphasizes that the unification and liberalization of exchange rates in June 2023 allowed the NAFEX rate to align with the parallel market rate, closing the gap. However, the resistance to mounting pressure on the Nigerian naira, coupled with limited FX supply at the official window, has led to the resurgence of the parallel market premium.
Furthermore, the World Bank predicts that Nigeria’s growth rate will slow from 3.3 per cent in 2022 to 2.9 per cent in 2023. This decline is attributed to below-quota oil production, capacity constraints, lower international oil prices, and policy actions like fuel subsidy removal and exchange rate unification.
The report also highlights weak business confidence, rising input costs, and contraction in Nigeria’s manufacturing and services sectors in August. Household purchasing power is expected to be impacted in the short term due to recent reforms, including the removal of fuel subsidies and devaluation of the naira.
While these measures are aimed at improving Nigeria’s fiscal and external accounts, they may have short-term inflationary effects that could affect household purchasing power and economic activity.