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Report: Exchange Rate Instability Hinders Nigeria’s Economic Recovery - NEW TELEGRAPH
Unless there is a stabilisation in the exchange rate or significant policy intervention by Nigerian authorities to tackle naira volatility, the economic burden on households will likely intensify, thereby negatively impacting overall demand and slowing the country’s economic recovery, a new report by Unity Bank has said.
The report, which noted that Nigeria’s economic outlook remains challenging as a result of the naira’s “continuous depreciation,” cited the recent World Bank “Pulse” publication that listed the naira among the weakest currencies in sub-Saharan Africa this year.
It pointed out that the World Bank said the naira’s depreciation was primarily fueled by heightened demand for dollars in the parallel market, limited dollar inflows, and sluggish foreign exchange disbursements from the Central Bank of Nigeria (CBN) to Bureaux De Change (BDCs).
“According to the World Bank, this sharp depreciation drove imported inflation, significantly raising the prices of foreign goods and services. Consumers faced heightened economic challenges as the cost of essential imports, such as food and fuel, surged, eroding real disposable income and worsening the cost of living.
By October 15, the naira was trading at N1,658/$ in the official market, reflecting ongoing volatility despite some recent recovery,” the report stated. It further said: “The outlook for the Nigerian economy remains challenging due to the currency’s continuous depreciation.
Households may increasingly struggle to afford essential goods, leading to sustained reductions in disposable income and a prolonged contraction in consumer confidence. Without significant policy intervention or stabilization in the exchange rate, the economic burden on households is expected to intensify, potentially dampening overall demand and slowing economic recovery.”
In recent weeks, the naira has been trading at between N1,600 and N1,670 per dollar on the official markets. The local currency has also been trading weaker on the parallel market as it fell to between N1,705 and N1,739 per dollar.
Currency dealers attribute the naira’s weakness to inadequate supply of forex amid increased demand for the greenback.
However, in his speech at the recent Nigerian Economic Summit (NES), CBN Governor, Olayemi Cardoso, stated that the sharp drop in the value of the naira presents an opportunity for the country to boost its exports.
He acknowledged that while Nigerians might be worried about naira weakness, the current climate offers a chance for individuals to identify and pursue investment opportunities.
Cardoso said: “In terms of persuasion, what we need now is to ensure that investments are here. Take, for example, now it may seem like a threat in the sense that the exchange rate has come down so low. But that also is an opportunity because what that means is that it can help to boost your exports.
“This will make Nigeria to become a lot more competitive in the export trade. I just want to encourage people to say that the opportunities are here. Things are recalibrating in a particular direction. It’s not perfect, but definitely there opportunities for people to single out and invest.
