Dipping oil prices, COVID-19, increasing debt, high poverty, and unemployment have been identified as factors that have forced the Nigerian government to change its earlier stance on the continued protection of the naira and succumbed to its devaluation by about 5.5 percent.
A news report by Bloomberg.com and an analysis by experts hinge the monetary policy stance earlier by the Federal Government to the International Monetary Fund (IMF) as a pre-condition for accessing loans from the fund and the World Bank, among other conditions.
Last week, the monetary authorities devalued the national currency which exchanged at N381/$, just a few months after obtaining its first loan from the IMF, although the Central Bank of Nigeria (CBN) has not announced the change and is yet to adjust the rate on its website. Instead, the new rate was published on the internet page of FMDQ OTC Securities Exchange, which oversees foreign exchange (forex) trading and has the CBN as a shareholder.
Although the Muhammadu Buhari administration has insisted that a stable naira is the fulcrum of its economic policy, experts said realities had dictated that the government had no choice but to comply with IMF’s guidance. The Head of Research, SBM Intelligence, Cheta Nwanze, said keeping the exchange rate stable in 2019 came at a cost, with depletion of the reserves which led the CBN governor to state the triggers for devaluation.
Nwanze said, “The Federal Government’s revenue position is alarmingly untenable, and with the modest increase in the National Minimum Wage still yet to take effect, the CBN simply cannot continue to defend the naira at current levels. “We expect the government to be forced into the hard choice of devaluing the currency sometime within the first half of 2020.”
As Bloomberg noted in its latest Next Africa, a weekly newsletter of where the continent stands – and where it is going next, the devaluation of the naira and previous taking of $3.4bn loan from the IMF, were “the price of an 80 percent collapse in oil revenue and the impact of an economic downturn caused by the COVID-19 pandemic. Bloomberg added, “But they also indicate an acceptance that helps from multilateral is needed and the currency rate must reflect the state of the country’s finances.”
