The Nigerian naira has been identified as one of the worst-performing currencies in Sub-Saharan Africa in 2024, according to the World Bank’s latest Africa’s Pulse report. The currency has experienced a significant depreciation, with a year-to-date loss of approximately 43% by August 2024.
Contributing Factors to the Naira’s Depreciation
Several factors have contributed to the naira’s rapid decline. One of the primary reasons is the surging demand for U.S. dollars in Nigeria’s parallel market, which is driven by financial institutions, non-financial entities, and money managers. The limited inflow of dollars, combined with sluggish foreign exchange disbursements by Nigeria’s Central Bank, has placed further pressure on the currency.
Despite efforts to liberalize the official exchange rate in June 2023 as part of Nigeria’s foreign exchange market reforms, the measures have not been enough to stabilize the naira, leaving it weak alongside other struggling currencies like the Ethiopian birr and the South Sudanese pound.
Impact on the Economy and Consumers
The depreciation of the naira has significantly impacted the Nigerian economy, particularly for consumers, as the costs of imported goods have skyrocketed. Inflationary pressures, combined with limited foreign reserves, have made the situation more difficult, leading to higher prices for essentials such as food and other imported products.
The weakening naira has also exacerbated inflation across the country, especially after the removal of fuel subsidies in mid-2023, which tripled gasoline prices. This increase has raised transportation and logistics costs, creating a ripple effect on goods and services throughout Nigeria.
Recent Developments and Slight Recovery
Despite these challenges, the naira showed some signs of recovery on October 14, appreciating by 5.69% against the U.S. dollar, improving from N1,641.27/$1 to N1,552.92/$1. However, the foreign exchange turnover saw a sharp decline during this same period, dropping by 44.27%.
Economic Projections for Nigeria
Looking ahead, the World Bank projects a modest growth of 3.3% for Nigeria’s economy in 2024, with slight acceleration expected between 2025 and 2026, reaching 3.6%. These optimistic forecasts are dependent on the continuation and success of ongoing reforms. However, inflation remains a significant concern for the country, especially in light of recent fuel subsidy removals and the subsequent rise in fuel and transportation costs.
A Call To Action
While Nigeria’s currency continues to face severe challenges, recent efforts to stabilize the naira, coupled with reforms, offer hope for gradual recovery. However, inflation and the rising cost of living remain substantial hurdles for the country’s economic stability.
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Written By Fortune Davidson