Naira’s value against the US dollar reached historic lows in 2022, especially in the black market. As the Central Bank of Nigeria (CBN) tried to consolidate the system of exchange rates into a single rate, the naira continued to deteriorate.
Manufacturers, investors, and private individuals turned to the black market to buy foreign currency due to the limited supply of FX.
2022 ended with the dollar selling at a rate of N740 as opposed to N565 at the start of the year.
On the Investors and Exporters (I&E) forex window which is Nigeria’s main FX market, the naira finished 2022 with an 8.56% decline.
Current realities for the naira: The current devaluation speculation for the naira is being fueled by rising inflation and a lack of foreign currency reserves.
Other worrisome trends are the weak performance of the current account balances, the decline in foreign reserves and the small difference between oil prices and the budget benchmark price. If these conditions persist, there could be increasing pressure on the naira in the medium term.
This is true even though the dollar remains relatively stable on the official market.
Drop in foreign reserves: Despite the CBN’s ongoing efforts to preserve the local currency, Nigeria’s loss in foreign reserves to $37 billion has also thrown a shadow over the naira. Additionally, oil receipts into the CBN’s coffers have virtually completely disappeared.
Projections for the naira: The World Bank’s senior economist for Nigeria, Alex Sienaert, projects that debt service will eat up 123.4% of the federal government of Nigeria’s revenue in 2023.
He stated that the expanding debt service-to-revenue ratio and the amount of Nigeria’s public debt, which will put more pressure on the local currency by 2023, are both causes for concern.
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