No recipe feat for the naira after it lost 55 per cent of its value in official market during the last 12 months, report by Bloomberg has shown.
The online media platform predicts naira will record worst performance in 25 years this year.
Also, the Nigeria’s foreign exchange reserves dropped to $33.23 billion at the end of the third quarter (Q3) of 2023, according to data obtained from the Central Bank of Nigeria (CBN).
The foreign reserves declined by $5.01 billion on a year-on-year basis relative to the $38.25 billion reported at the end of September 2022.
On a quarter-on-quarter basis, the foreign reserves depreciated by $881.84 million, having closed the second quarter (Q2) at $34.11 billion.
According to CBN data, the reserves further declined to $32.8 billion in December 27, 2023, indicating significant fall with huge negative impact expected on the naira. The impact will also worsen Nigeria’s capacity to fund imports, as increased forex demands worsens naiba’s woes.
According to the publication, the naira is poised for its worst year since the return to democracy in 1999 adding that analysts are predicting further depreciation in 2024.
The report said naira fell 55 percent this year to N1,043 per dollar at the official market on Thursday.
The decline, Bloomberg said, made the naira the third worst-performing currency in the world behind the Lebanese pound and the Argentine peso — among 151 currencies tracked by the media firm.
It reported foreign reserves in Nigeria are at the lowest in six years with most of them burdened by overdue short-term overseas obligations.
In the non-deliverable forwards market, according to the report, the naira’s 12-month contract is trading near a record low of N1,294.44/$ .
The worst came for the local currency after the Central Bank of Nigeria (CBN) unified all exchange rates into the Investors and Exporters (I&E) window.
The apex bank directed that applications for medicals, school fees, Business Travel Allowance/Personal Travel Allowance, and SMEs would continue to be processed through the I&E window.
It said the operational changes to the foreign exchange market also include the re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window.
“Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window,” it said.
The removal of petrol subsidy worsened inflation which is now at 18.2 per cent in November, while the benchmark interest rate is at 18.75 per cent.
“The negative real interest rate has dissuaded overseas investors,” the report said.
Vetiva Capital Management Ltd told the publication that the naira may depreciate further unless government attracts international investments or ramps up oil output.
Analysts said inflation is likely to flatten out in the next quarter and begin to decline afterwards as CBN sustains interest rate hike and the adoption of measures to firm up the naira.
Also, Managing Director, Nairametrics, Ugochukwu Obi-Chukwu, said weaker naira will emerge, before it finally rebounds in the course of the year.
On prospects for the naira, Obi-Chukwu said: “I don’t mind losing this argument, but we will likely see weaker naira down the line before it starts to stabilise because the indicators don’t look good yet. It is good that we are clearing backlogs, that will serve as confidence booster. But what will attract the sort of forex we need as a country, will take a while.”
He added: “As an import-driven economy, people source dollars to import their goods. They then sale in naira, and mop up another round of dollars for imports. As you are taking out the dollars, what is coming in as exports earning is small. A lot of the things you see happening, is a cycle”.
