A US-based media company, Bloomberg L.P, has predicted a sustained decline of the Naira in 2024, marking its poorest performance since 1999.
Bloomberg’s market analysis reveals that the naira has experienced a 55% decline this year, reaching approximately 1,043 per dollar as of Thursday. This positions it as the globe’s poorest performer among 151 currencies tracked by Bloomberg, trailing only the Lebanese pound and the Argentine peso.
In addition, Nairametrics daily FX watch showed that the Naira slumps to a new low against the dollar on Thursday, December 28th, 2023, at the official market at N1,043.09 per dollar.
This represents a significant depreciation of 16.35% compared to its previous closing rate, marking a concerning trend just three days before 2024.
Moreover, the decline marks the second occasion where the Naira has surpassed the N1,000/$ threshold, signaling a considerable devaluation and prompting worries about its repercussions on the economy.
Foreign Reserve lowest in six years
The market analysis also showed that the foreign reserve has hit a six-year low, largely constrained by pending short-term overseas obligations.
The Central Bank annual financial statement published in August refers to two securities lending agreements with JP Morgan Chase & Co. for $7 billion in 2021 and two of $500 million with Goldman Sachs Group Inc.
JP Morgan also estimated Nigeria’s net FX Reserve to be around $3.7 billion much lower than the net figure of $14 billion reported at the end of 2021.
- “Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around US$3.7 billion at the end of last year, from US$14.0 billion at the end of 2021,” the financial service firm stated.
What can be Done?
- The devaluation of the Naira is attributed to President Bola Tinubu’s reforms such as the unification process of the foreign exchange rate.
- Vetiva Capital Management Ltd., therefore, suggests that unless President Bola Tinubu’s administration attracts international investors or increases oil production, the naira might continue to decline.
- “It’s clear that further devaluation — alongside tighter monetary policy — is needed to reduce imbalances in the FX market,” Patrick Curran, a senior economist at Tellimer Ltd tells Bloomberg.
- Also, the market analysis noted that a significant rise in external reserves, material increase in foreign exchange inflows, and reduction in money supply will have a positive impact on the currency.
