The naira is expected to be under intense pressure from the dollar starting next week, no thanks to Nigeria’s poor export earnings due the COVID-19 pandemic.
This is coming as Nigeria’s commercial banks struggle to meet dollar demands by importers who are seeking to meet past due obligations.
Already, the naira has been depreciating across the official and parallel markets since mid-March, following a crude price slump. As Nairametrics reported, the Central Bank of Nigeria devalued the naira and suspended foreign exchange sales to Nigeria’s retail currency traders.
Earlier this past Thursday, the naira dropped to N387.30 per dollar and then declined further to N387.70 on Friday at the official currency spot market.
On the black market, however, the naira was quoted at about N415 per dollar, having fallen more than the spot market rate.
Foreign exchange inflows into Africa’s largest economy plunged after crude oil prices fell drastically, even as the COVID-19 pandemic continues to exacerbate an already tight currency market.
Recall that the drop in crude oil prices and Nigeria’s dwindling foreign exchange reserves had led to experts’ predictions that it was only a matter of time before the CBN decide to devalue the naira.
In addition, America’s biggest bank, JP Morgan Chase, had reported that it expects a 10% devaluation of the naira to N400 per dollar by the end of the end of Q2 2020.
The first quarter of 2020 have witnessed a generally bearish trend in global financial markets, starting with China which, unfortunately, was the first epicenter of COVID-19 pandemic.
With China being a major trade partner to Nigeria, it was not surprising how the initial Coronavirus crisis and resultant lockdown in China had diffused through the Nigerian economy.
Nigeria exports a significant volume of its crude oil output to China. And crude oil sales account for about half of Nigeria’s revenue and 90% of its export earnings.
Nigeria’s foreign reserves have depleted to $35.8 billion as of late March 2020, all due to all the upheavals in the global economy.
The country has now resorted to selling its crude at an unusually low discount starting from April, all in an effort to undercut its rivals and survive.