Nigeria’s currency, the naira, faces a grim outlook for 2024, marking its worst performance since the country’s return to democracy in 1999, according to a report by Bloomberg.
Amidst dwindling foreign reserves totaling $32.8 billion, the lowest recorded in six years, analysts predict a further decline in the naira’s value in the coming year.
The naira witnessed a staggering 55% decline this year, reaching 1,043 per dollar in the official market as of Thursday.
This performance places it among the world’s poorest-performing currencies, standing only behind the Lebanese pound and the Argentine peso among the 151 currencies tracked by Bloomberg.
On the streets, the currency trades at 1,208 naira per dollar.
Notably, Nigeria’s foreign reserves, especially strained by overdue short-term overseas obligations, are at their lowest in six years.
Experts at Vetiva Capital Management Ltd suggest that unless President Bola Tinubu’s administration attracts international investors or significantly boosts oil production, the naira may continue to weaken.
The naira’s 12-month contract in the non-deliverable forwards market is near a record low, currently trading at 1,294.44 against the dollar.
Patrick Curran, a senior economist at Tellimer Ltd, emphasized the need for further devaluation, coupled with a tighter monetary policy, to address imbalances in the foreign exchange market.
“lt’s clear that further devaluation — alongside tighter monetary policy — is needed to reduce imbalances in the FX market,” he said.
The currency’s depreciation began following the central bank’s decision in June to allow more flexibility in its trading, combined with the government’s removal of costly petrol subsidies.
These measures, alongside the weakening naira, have significantly fueled inflation, now standing at 28.2%. Meanwhile, the benchmark interest rate is at 18.75%, resulting in a negative real interest rate that deters foreign investors.
Vetiva Capital highlighted potential positive factors for the naira, including a significant rise in external reserves, increased foreign exchange inflows, and a reduction in money supply, in a note to its clients.
