Nigeria’s currency depreciated by 9.8 percent in the second quarter of 2023 following the adoption of a single exchange rate regime by the Central Bank of Nigeria (CBN).
The average exchange rate of the naira to the US dollar at the Investors’ and Exporters’ (I&E) window, now the Nigerian Autonomous Foreign Exchange Market (NAFEM), stood at N511.23/$, compared with N460.93/$ in Q1.
According to the quarterly economic report of the CBN, the 9.8 percent depreciation was attributed to the adoption of a market-driven exchange rate regime in June 2023.
The CBN, on June 14, 2023, collapsed all segments of foreign exchange markets into the I&E forex window.
The average turnover at the I&E window increased by 23.2 per cent to $0.13 billion from $0.10 billion in Q1.
Foreign exchange flows through the economy resulted in a higher net inflow in the second quarter of 2023. Consequently, net foreign exchange inflow through the economy increased by 20.6 percent to $8.69 billion from $7.20 billion in the preceding quarter, according to the central bank.
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Net inflow through autonomous sources rose to $9.64 billion from $8.89 billion in the preceding quarter. A net outflow of $0.96 billion was, however, recorded through the CBN, compared with a net outflow of $1.69 billion in the preceding quarter.
The report said international reserves remained above the standard benchmark of three months of import cover. It stood at $33.71 billion as of June, relative to $34.39 billion at the end of March. The level of external reserves could cover 6.5 months of import for goods and services or 8.9 months of import for goods only.
Naira fell to an all-time low of 996.75 per dollar at the NAFEM in November 9, 2023 and N1,310/$1 at the parallel market in October.
Looking at the impact of this on the ordinary people, Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said on Thursday that the connection may be a bit remote and not direct, adding that the adoption of the FX convergence was first to eliminate corruption and lack of transparency.
He said: “Currently, the transparency might not be absolute, yet it is far more transparent than what we used to have. So the first problem was corruption and round tripping that this FX convergence was going to put an end to. The second advantage is the revenue advantage. Under the former regime, if the government put $1 billion in the market, it would get N450 billion. Now if the CBN puts $1 billion in the market, it will get over N800 billion. How they now use the revenue to benefit the people is a different matter. But it has given the state, local and federal gvernments more revenue.”
Yusuf added: “The third point is that the convergence will encourage more inflows. By the time you begin to see the data on capital importation, you will see a significant improvement of dollars that are coming in through the official channel. Under the former regime, the capital importation virtually dried up because no investor was ready to bring in money at that exchange rate.
“Those are the opportunities or benefits the convergence will bring to the economy. How this will be translated to the ordinary people now depends on how the government manages the benefits of this reform.”
Edward Lametek, former deputy governor of the CBN, said: “As it is expected, the effect of the recent policy shocks would transcend their impact on prices. We have seen, for example, a jump in government revenue arising from a higher FX conversion rate. Also noticeable is asset revaluation gains (and loses) for corporates including financial institutions majorly.”
The report noted that foreign exchange inflow to the economy fell by 6.3 per cent to $16.09 billion from $17.18 billion in the Q1. Foreign exchange inflow through the CBN declined to $5.41 billion from $7.17 billion.
Foreign exchange inflow through autonomous sources, however, increased to $10.68 billion from $10.01 billion in the preceding quarter, as a result of the FX unification.
According to the report, foreign exchange outflow from the economy decreased by 25.8 percent to $7.40 billion, relative to $9.98 billion in the Q1. Outflow through the central bank decreased by 28.1 percent to $6.37 billion from $8.86 billion. Similarly, autonomous outflow fell by 7.4 percent to $1.04 billion from $1.12 billion.
The Economist Intelligence Unit estimated the naira-dollar exchange rate to close the year at the rate of N810/$1 at the official FX market. They forecast naira to depreciate to N822.88 per dollar in 2024, and N1,142.54/$1 in 2025.