Nigeria’s foreign exchange (FX) conditions are likely to remain tight in 2021 as higher oil prices – with a $55/bbl forecast for 2021 – would still fall short of providing the adequate liquidity needed to ease dollar shortages, according to EFG Hermes, a financial services company based in Egypt.
The Federal Government hinged the N13.08 trillion budget for 2021 on an oil price benchmark of $40 per barrel and a daily oil production estimate of 1.86 million barrels.
The foreign exchange market has been under pressure since March 2020 following a sharp drop in oil prices as a result of Covid-19 pandemic.
In 2020, the CBN devalued the Naira on three occasions to ameliorate the pressure. The adjustments according to analysts at FSDH research were also steps to bridge the gap between official and parallel markets rates.
On several occasions, these adjustments, coupled with lower FX inflows extended the gap in both markets.
Consequently, the foreign exchange closed the year 2020 with Nigeria’s currency losing 30.55 percent of its value against the dollar on the parallel market, due to sharp drop in oil prices and low foreign earnings occasioned by Covid-19 pandemic.
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“With rates depressed as they are, the country stands no chance in attracting foreign portfolio investments, which were key in easing liquidity shortages back in 2017,” analysts at EFG Hermes said.
However, on a day-on-day basis, the local currency closed stable across market segments on Friday. At the parallel market and the Bureau De Change (BDC) segment, naira steadied at N475 per dollar.
Naira remained unchanged at N394.67k at the Investors and Exporters (I&E) forex window on Friday, as most participants maintained bids between N388.00 and N398.00 per dollar.
“We expect continued pressure on FX in 2021 as domestic demand recovers and reserve buffers remain thin,” the analysts said.
