Naira Hits All-Time Low, Declines Further

Nigeria’s currency faces severe depreciation, ranking as one of the worst-performing globally in 2024, with experts pointing to fiscal imbalances and low foreign reserves

The Naira’s depreciation continues to raise concerns as it dropped further to N1,710 per dollar in the parallel market, making it one of the worst-performing currencies globally in 2024. This trend has sparked alarm among financial analysts, who attribute the situation to deep-seated economic distortions, fiscal deficits, and dwindling foreign exchange reserves.

According to a report from the World Bank, the Naira’s depreciation reflects broader macroeconomic challenges in Nigeria. Naira’s depreciation has not only impacted its performance in the parallel market but also led to a drop in value in the official market, hitting N1,660 per dollar from N1,659 previously.

David Adonri, an analyst and the Executive Chairman at Highcap Securities, attributes Naira’s depreciation to the nation’s fiscal imbalance, excessive borrowing, and a continued reliance on imports. He believes that the currency’s poor performance stems from both domestic and international pressures, worsened by inflation, which erodes the purchasing power of the Naira. Adonri suggests that only a significant reduction in government expenditure and efforts to boost local production can reverse the Naira’s depreciation.

Tunde Abidoye, Head of Equity Research at FBNQuest Securities, shares a similar sentiment, noting that boosting crude oil production and non-oil exports is crucial to mitigating the effects of the Naira’s depreciation. He explains that increasing oil output to 1.8 million barrels per day could offer some relief, while long-term strategies must include diversifying the economy away from oil dependency.

Despite attempts by the Central Bank of Nigeria (CBN) to address the situation, including tightening monetary policy, financial experts argue that monetary measures alone are insufficient. Nnamdi Nwizu, Co-Founder of Comercio Partners, believes that fiscal policy holds the key to resolving the Naira’s depreciation, particularly through efforts to increase foreign currency sources and encourage domestic manufacturing.

Experts like Dr. Ayodeji Ebo from Afrinvest point to the challenges posed by the CBN’s free-floating exchange rate policy. He notes that Naira’s depreciation is exacerbated by the economic environment, making it difficult to implement a sustainable free-float system. Instead, he suggests a managed float could stabilize the currency while providing businesses with a more predictable economic landscape.

The Naira’s depreciation has had both negative and positive effects on Nigeria’s economy. According to Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria (ASBON), while the declining Naira has made imports more expensive, it has also boosted the competitiveness of Nigerian products in international markets. By earning foreign exchange from exports, businesses can offset some of the losses from Naira’s depreciation.

In the view of Dele Oye, President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), the Naira’s 43% depreciation underscores the severe economic pressures facing Nigeria. The parallel market’s skyrocketing demand for US dollars, coupled with inadequate forex inflows, has created an unsustainable situation for many businesses. Oye advocates for a more transparent and responsive approach from the CBN to manage currency stability and curb Naira’s depreciation.

Ultimately, reversing the trend of Naira’s depreciation will require coordinated efforts between fiscal and monetary policies, a shift from consumption to production, and strategic investments in the nation’s productive sectors.