The naira has been designated one of the world’s poorest-performing currencies in 2023, according to Bloomberg’s latest report. The currency is poised for its most challenging year since the return to democracy in 1999, with analysts forecasting further depreciation in 2024.
The Naira is labeled one of the worst-performing currencies in 2023, facing a 55% plunge and predicting further depreciation
Bloomberg attributes Naira’s decline to a freer trading regime, removal of petrol subsidies, and depleting foreign reserves
The removal of petrol subsidies emerges as another critical factor in the Naira’s downturn. While such subsidy removals are often viewed through the lens of fiscal responsibility, their immediate impact on the purchasing power of the naira can be profound. The resultant increase in fuel prices reverberates through the economy, leading to a ripple effect that weakens the naira’s standing.
Perhaps most concerning is the depletion of foreign reserves, a circumstance cited by Bloomberg as a driving force behind the naira’s woes. A nation’s foreign reserves serve as a financial buffer, shielding its currency from external pressures. The gradual depletion of Nigeria’s reserves leaves the naira vulnerable, accentuating the challenges posed by external economic factors.
The gravity of the Naira’s depreciation becomes even more apparent when viewed through the lens of history. Since the return to democracy in 1999, Nigeria has navigated through various economic landscapes, but the challenges faced by the Naira in 2023 mark an unprecedented low. The current predicament underscores the urgency of addressing the economic fundamentals that have led to this historic downturn.
As 2023 draws to a close, analysts are not painting an optimistic picture for the Naira in the coming year. Bloomberg’s report suggests that the challenges faced by the currency are unlikely to subside, with further depreciation anticipated in 2024. This projection necessitates a careful examination of economic policies and strategies to mitigate the impending risks and foster a more robust economic environment.
Bloomberg highlighted that the Naira experienced a significant 55 percent plunge this year, reaching 1,043 per dollar as of Thursday. This places it as the world’s worst performer among 151 currencies tracked, trailing behind the Lebanese pound and the Argentine peso.
The naira hit an all-time low on Thursday, depreciating to N1,043.09 per US dollar in the official market just days before the New Year.
The report attributes the depreciation to the Central Bank of Nigeria’s decision to allow the currency to trade more freely in June and President Bola Tinubu’s move to eliminate costly petrol subsidies. Additionally, Nigeria’s foreign reserves have hit a six-year low, with a significant portion tied up in overdue short-term overseas obligations.
Vetiva Capital Management Ltd, quoted by Bloomberg, predicts that the currency may continue to slip unless the Tinubu-led federal government attracts international investors or increases oil output. Vetiva Capital Management emphasized the need for further devaluation, coupled with tighter monetary policy, to address imbalances in the foreign exchange market.
In a note to clients, Vetiva Capital stated, “It’s clear that further devaluation — alongside tighter monetary policy — is needed to reduce imbalances in the FX market. A significant rise in external reserves, material increase in foreign exchange inflows, and reduction in money supply will be positive for the Naira.” The unfolding situation poses challenges that demand careful consideration and strategic interventions to stabilize the Naira’s value in the global financial landscape.
