Nigeria’s currency, the naira, has been ranked as one of the 10 worst-performing currencies in the world, according to a recent report by Bloomberg. This development comes as several African currencies, including the Zambian kwacha and Angolan kwanza, also face similar challenges, reflecting broader economic struggles across the continent.
Key Factors Behind Naira’s Decline
The Bloomberg report attributes the decline in the naira and other African currencies to a combination of economic challenges, unstable commodity prices, inflationary pressures, and a lack of dollar liquidity. Many African economies, especially those reliant on oil exports, have been significantly impacted by fluctuating oil prices. As oil revenues decline, countries like Nigeria struggle to maintain stable currency values.
Expert Opinions on Naira’s Struggles
Keonethebe Bosigo, a portfolio manager at Mazi Asset Management, highlighted poor currency management and economic imbalances as the root causes of the naira’s underperformance. He noted that the Nigerian government’s decision not to allow the currency to adjust to market realities led to overvaluation, eroding investor confidence in the naira.
Irmgard Erasmus, an economist at Oxford Economics, also provided insights, pointing to ongoing liquidity issues and dollar shortages. Despite efforts to liberalize Nigeria’s current account following President Tinubu’s election in 2023, the naira continues to face substantial pressure. Erasmus suggested that while improved dollar liquidity could aid recovery, the currency remains undervalued due to these persistent challenges.
Impact of Brent Crude Prices
Erasmus further noted that the decline in Brent crude prices has exacerbated Nigeria’s economic struggles. With oil being a major source of revenue, the falling prices have put additional pressure on the naira. She added that without significant reforms and better access to dollars, the outlook for the currency remains bleak.
Naira’s Current Trading and Future Outlook
The report highlighted that the naira should ideally be trading around N1,100 per dollar in the absence of distortions, compared to its recent close of N1,544/$. However, Erasmus warned that without major policy shifts and improved dollar liquidity, the currency’s future remains uncertain.
General Issues
The naira’s current position among the world’s worst-performing currencies highlights the broader economic challenges Nigeria faces. While external factors like oil prices play a role, experts agree that better currency management and reforms are critical for the naira’s recovery.
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Written By Fortune Davidson