Residents of Africa’s largest economy finally seem to be exasperated as the exchange value of the naira continually loses value against the greenback. Is this really the liberalization of the country’s FX market?
The purchasing power of the local currency is shrinking to the point where holding the naira is becoming an abomination.
The naira fell to an all-time low of 950 naira to a dollar on the parallel market on Friday morning, as FX traders bet against the naira.
However, in the face of a huge shortage of money supply compared to demand, especially with a backlog of unmet demand for currency estimated at more than $2 billion, currency illiquidity in the market continues to impact supply in a country that relies heavily on imported goods and services
Data from the FMDQ exchange showed the spot exchange rate for the local currency to stand at N781.34 at the counter for investors and exporters, while NAFEX rose 0.71% to close at N775.08 /$
Another valid reason, which is also the cause behind the deep depreciation of the naira, is that the supply of dollars in the economy has decreased while the demand for dollars has remained relatively unchanged due to the huge demand for dollars in the economy.
The country is driven by a reliance on imported goods for many economies. activities.
CBN data shows that the nation’s external reserves fell from $33.9 billion on August 11 to $37.15 billion on December 31, 2022.
The latest oil report data released by the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) revealed that production has fallen to a monthly low, suggesting no short-term fix for the naira, as the country’s main exporter faces headwinds.
Nigeria’s crude oil production fell to 1.29 million barrels per day (bpd) in July, according to the latest report from the country’s oil regulator.
President Bola Tinubu criticized CBN during his inaugural address on May 29, saying monetary policy needed a “deep clean”.
Recall on June 14, the apex bank announced the replacement of the previous system of various exchange rate “windows” with the unification of all foreign exchange market divisions.
One real rate is the same for all exchange rates as a result, the official rate fell by 40% in June and there was continuous instability as the naira fluctuated between $750 and $800 while the black market was at a spiral fall as speculators held the local currency hostage.
Moreover, the gap between the official rate and the black-market rate widened again, reaching 18%, the highest since mid-June, when the naira was allowed to trade more freely.
The International Monetary Fund says Nigeria’s loose fiscal and monetary policies are creating excess liquidity, making it difficult to stabilize the naira against the dollar two months after authorities announced free currency transactions.
The most recent figures from CBN reveal that M2 has grown 22% year-on-year (YtD) since CBN announced 52.84 trillion naira in January 2023 to an all-time high was 64.36 trillion naira in June.
The move from the central bank to the government increases the naira in circulation, lowers interest rates, discourages savings, and prevents dollars inflows, said Ari Aisen, the IMF’s resident representative in Nigeria.
Tinubu’s bold economic reforms have been praised, especially by economists and the World Bank, who see them as bold and necessary.
However, it seems that Tinubu and the optimists are no longer in touch with harsh reality.
New evidence shows that the administration did not prepare nor conduct a thorough diagnosis of existing conditions in the economy.
The President for the sake of the populace should address financial incompetence, corruption, and high administrative costs that as also plagued the naira’s stability, Debt repayment services accounted for 96.6% of the FG’s income; the budget deficit is very high.
The President must also quickly restore confidence in the financial system by immediately swearing in as finance minister while building a strong economic management team.
The status quo does not inspire faith in the naira, offering less than outdated academic prescriptions.
Tinubu and the current administration so far demonstrated a very clear trend: they embrace vital economic changes when the consequences primarily impact the masses, as seen in ending subsidies and letting the Naira’s value fluctuate. However, their eagerness diminishes when it concerns reforms that would primarily affect the wealthy. This reluctance is evident in their hesitance to raise interest rates through the MPR, an adjustment needed to achieve positive real interest rates, encourage more domestic savings, and more investment inflows. Furthermore, they lack the same commitment to reducing government costs by tackling waste, fraud, and corruption at the federal and state levels, which would reduce the unrelenting deficit spending that is also a major drag on the value of the Naira.
Time is Not running out for God to intervene in the affairs of this nation. Obviously Tinubu.was not prepared for his immediate and short term policy actions. There were loose ends