Naira in steep depreciation despite CBN policies

The Nation Newspaper

The naira suffered steep depreciation in 2022 with the national currency losing between at least 11 per cent and 23 per cent.

Analysis of the exchange rates’ movements showed that the naira lost 11 per cent of its value at the official market and was worse at the parallel market, where it lost not less than 23 per cent of its value.

The local currency, which started the year at N416 per dollar in January 2022 at the Investors and Exporters (I & E) Window foreign exchange market, closed the year at N461.50 per dollar, translating to about 11 per cent year on year depreciation.

Bismarck Rewane, attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing. He said naira rates convergence would require adoption of a full floating exchange rate system determined by the forces of demand and supply.

Likewise, the International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.

The IMF insisted that restrictions on access to foreign exchange for certain categories of goods, and multiple exchange rates create distortions in both private and public sectors decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.

Moving forward, the Fund suggested removal of foreign exchange restrictions, and a full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.

It therefore called for unified exchange rate for the naira to promote growth and attractive foreign capital.

According to the IMF, foreign exchange backlog and shortages are intensifying Balance of Payment (BoP) pressures insisting that exchange rate unification was imperative to reduce BoP risks. It said that fiscal deficit will stay elevated in the medium term, while additional domestic revenue mobilisation is required to reduce fiscal risks.

Global Chief Economist at Renaissance Capital (RenCap), Charles Robertson, said Nigeria is in a difficult position and needs to increase its dollar earnings and other revenue to support the naira.

He said Nigeria should hike taxes, raise more revenue as the country’s current position is so bad, that it has never been witnessed in the last three decades.

Robertson, who is also RenCap’s Head Macro-strategy Unit, added: “Things are not looking pretty good for Nigeria and other emerging markets. Oil production in Nigeria has fallen so badly in the last few years and oil prices is also about falling more. We are going to see disinflationary policies coming because we are approaching recession,” he said.