The free fall of the Naira continued at the parallel market as the United State Dollar exchanged for N1506/$ yesterday from the N1,410 it sold the previous day despite the release of $500 million by the Central Bank of Nigeria (CBN) to various sectors to address the backlog of verified foreign exchange (forex) transactions.
The Naira also fell at the official market to N1,349 from the N891.90/$ it traded the previous day. The window also saw an intra high of N1,410.
Recall that in June 2023, the CBN announced the unification of the foreign exchange market which sent the exchange rate rising to almost N800/$ from $1/471.
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The naira has lost almost 200% of its value since the action of the CBN in June despite multiple assurances by the CBN and the federal ministry of finance to tackle the supply side of foreign Exchange.
Speaking during a panel session at the Nigeria Economic Summit (NES) in Abuja in October 2023, the Minister of Finance and coordinating minister of the economy, Wale Edun said the government has a line of sight of forex inflows into the country in weeks rather than months.
“There is a line of sight of $10 billion worth of foreign exchange in the relatively near future in weeks rather than months.”
He explained that President Tinubu has signed an executive order that effectively allows under forbearance all the cash that is in the domestic economy to legally come into the formal money supply.
“Mr President announced that he had taken measures to ease illiquidity in the forex market which we know is very problematic at this time. The market is illiquid; it’s not functioning properly because there is no supply and there are various reasons for that.
CBN pumps fresh $500 million
Yesterday, the acting Director of Corporate Communications at the CBN, Mrs Hakama Sidi Ali, in a statement, noted that the management of CBN was committed to settling all legitimate foreign exchange backlogs within a short time frame.
She said the CBN Governor, Mr Olayemi Cardoso, had begun implementing a comprehensive strategy to improve liquidity in the Nigerian foreign exchange market in the short, medium and long-term.
“As the governor said, the CBN’s focus is on addressing fundamental issues that have hindered the effective operation of the Nigerian FX markets over the years,” she added.
Mrs Ali urged all participants in the market to play by the rules, stressing that transparency in the market would enable the fair determination of exchange rates, and by extension guarantee stability for businesses and individuals.
With the latest intervention, The CBN has released over $2.5bn to clear the forex backlog which is tutored to be around $6.5bn.
Exchange rate volatility may affect debt servicing in 2024 – PwC
A new report from PricewatershouseCoopers (PwC) has revealed that Nigeria may face challenges with its debt servicing in 2024 over volatility in the forex market.
This was contained in the PwC Nigeria Economic Outlook for 2024 which detailed the seven trends that will shape the Nigerian economy in 2024.
According to the report, public debt may remain elevated because of increased budget deficit for the year adding that higher government spending may persist due to debt service obligations and managing substantial fiscal deficits.
The report also noted that a drop in revenue might increase the deficit to GDP ratio from its high of 123 per cent in the first quarter of 2023.
It further referenced a World Bank report where the bank warned that without important fiscal reforms, the debt service to GDP ratio might rise to 160 per cent by 2027.
According to the report, “The public debt stock of N87.9trn in Q3 2023 may increase further in 2024 due to the budgeted deficit of N9.18trn and proposed additional borrowing of N8.88trn in 2024.
“Furthermore, if a revenue shortfall occurs, the deficit to GDP may further increase. Though the debt stock to GDP is low at 37.1 per cent, the debt servicing to revenue ratio remains high at 124 per cent as of H1 2023.
“Servicing external debt in 2024 may remain challenging due to exchange rate volatility and potential devaluation of the naira.”
Government must immediately come out with new reforms – Expert
A capital market executive, Samuel Showunmi, has urged President Bola Tinubu to address the naira depreciation and deal decisively with violators of forex guidelines and framework.
Showunmi, an executive at Iron Global Markets Limited, a subsidiary of Iron Capital said there should be both short and long term solutions to solving the depreciation of naira.
He said, “There are no simple or quick fix measures. The measures must be a consolidation of different strategies and policies. The government must quickly come out with FX reforms policy and I know that the Central Bank of Nigeria (CBN) is working on a new regulatory framework for the FX market but I will want to advise that we don’t delay too much because delay can be dangerous.”
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