Nigeria’s currency has depreciated by 57.45 percent against the dollar on the official foreign exchange market in the eight-year tenure of President Muhammadu Buhari.
Buhari, who will leave office in less than two weeks, had in 2015 promised that his administration would help stabilise the naira.
At the Central Bank of Nigeria’s (CBN) official window, the naira has weakened by 264 (57.26 percent) to 461 per dollar as of May 16, 2023 from 197/$ in 2015 when Buhari assumed office.
The foreign exchange pressure continued at the parallel market, where the naira depreciated by 37.58 percent (N280) to N745 per dollar as of Wednesday, May 17, 2023, compared to N465/$ in 2016.
“Currencies have to move to compensate for different inflation rates. Nigeria’s currency has weakened under Buhari but not enough to compensate for much higher inflation in Nigeria than its main trading partners,” said Charlie Robertson, global chief economist at Renaissance Capital.
According to him, the naira will have to move towards N700/$ to remove the over-valuation built up over recent years.
Bola Onadele Koko,group managing director/Chief Executive Officer of FMDQ Group PLC., said: “The FX market structure should return to willing seller, willing buyer. That is the only way to inspire market confidence. Liquidity will flow and the exchange rate will ease.”
To stabilise the value of the naira, Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said the incoming administration should make deliberate efforts to encourage foreign direct investments in Nigeria, encourage foreign portfolio investments, block oil theft, and encourage the development of solid mineral resources to grow exports.
He said the next government should also encourage direct linkages between the agriculture sector and manufacturing sector so that there can be value addition to the raw materials produced by the agricultural sector to reduce importation.
The global oil price benchmark stood at $28.9 per barrel as at December 2015 but later rallied to $49.9/b on June 30, 2016. Foreign exchange inflow into the economy declined by 23.86 percent from $6.58 billion in November 2015 to $5.01 billion in November 2022, the latest economic data from the CBN indicated.
However, the external reserves, which give the CBN the firepower to defend the naira, increased by 19.33 percent to $35.31 billion as of April 20, 2023 from $29.59 billion recorded on May 28, 2015.
In the first 100 days of Buhari’s administration in June 2016, the CBN adopted a single FX market structure and the introduction of derivatives products. On the first trading day of the new interbank market, the apex bank cleared $4.02 billion of pent-up demand accumulated over months at N280/$1.00. Subsequently, the interbank rate tumbled from the pegged N197.00/$1.00 to over N280/$1.00. Godwin Emefiele, governor of the CBN, said at the time that with the policy, the naira would devalue in relation to the dollar and Nigeria would abolish the dual exchange rate regime.
The CBN has within the eight years introduced various FX policies in an effort to stabilise the naira and ensure effective utilisation of FX allocation.
In June 23, 2015, the CBN restricted importers of 41 items (later to 44 items) from accessing FX.
In the same year, there was an FX policy that limited the usage of naira-denominated cards overseas to $300.0 per person, per day. Last year several banks reduced it to $20 while some suspended the usage of the cards for international spending.
In 2019, the CBN abolished commission on retail FX transactions on invisible services, such as business travel allowance, personal travel allowance, medical and school fees. The bank also adjusted downward the selling rate of FX to Bureaux de Change (BDC) operators and increased the frequency of its interventions in other windows, to ease access and availability of FX to end-users.
On April 27, 2018, the central bank signed a three-year bilateral currency swap agreement of $2.5 billion, equivalent to ¥15.0 billion or N720.0 billion with the Peoples Bank of China, as part of an effort to reduce FX demand pressure and facilitate investment.
The CBN, in September 2020, mandated lenders to place Post-No-Debit status on the accounts of entities that participate in the parallel market.