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Nigeria’s naira has been listed among the worst-performing currencies in Sub-Saharan Africa in 2024.
This according to World Bank in its lastest latest edition of Africa’s Pulse, which says, as of August 2024, the naira had depreciated by 43% year-to-date, placing it among the weakest currencies in the region, alongside the Ethiopian birr and South Sudanese pound.
The depreciation of the naira is attributed to several factors, including surging demand for United States dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank.
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The World Bank’s report further highlights that demand for dollars, driven by financial institutions, non-financial end-users, and money managers, has exacerbated the pressure on the naira.
It noted, “By August 2024, the Ethiopian birr, Nigerian naira, and South Sudanese pound were among the worst performers in the region. The Nigerian naira continued losing value, with a year-to-date depreciation of about 43 per cent as of end-August.
“Surges in demand for US dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the central bank explain the weakening of the naira.”
This situation has persisted despite some foreign exchange market reforms introduced by the Nigerian government, including the liberalization of the official exchange rate that began in June 2023.
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However, these efforts have so far been insufficient to stabilize the currency.
The naira’s struggle reflects broader economic challenges in Nigeria, including limited foreign currency reserves and ongoing inflationary pressures.
The report also notes that the naira’s depreciation has contributed to higher domestic prices, particularly for imported goods, compounding the difficulties for Nigerian consumers.
In contrast, some African currencies that faced challenges in 2023, such as the Kenyan shilling and South African rand, have shown signs of recovery this year.
The Kenyan shilling, for instance, strengthened by 21 per cent year-to-date by the end of August 2024, marking it as one of the region’s top performers.
Despite this, foreign exchange shortages and exchange rate pressures remain a significant concern for many African economies.
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The devaluation of the naira has heightened inflationary pressures, making imported goods and services more costly and diminishing the purchasing power of Nigerians.
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This decline in currency value, along with rising fuel prices, has especially affected the transportation sector, which depends heavily on imported petroleum products.
Despite fiscal reforms aimed at stabilizing the economy, the World Bank anticipates that inflation in Nigeria will remain high in the coming months.
After starting the week with a notable appreciation of over 5%, the naira experienced a significant drop on Tuesday as foreign exchange turnover continued to decline.
Data from NAFEM and FMDQ revealed that on Tuesday, October 15, 2024, the naira depreciated against the U.S. dollar, closing at N1,658.97/$1, a 6.39% decline from N1,552.92/$1 the previous day.
This depreciation coincided with a sharp 36.62% decrease in foreign exchange turnover, which fell from $343.71 million on Monday to $217.86 million on Tuesday.
The drop in FX turnover indicates a reduced liquidity of dollars in the market, further increasing pressure on the naira.
It was reported that the naira fell to a new record low of N1,700 per dollar in the parallel market on Monday, marking a 0.29% decrease from N1,695/$1 on October 11.
Additionally, after two consecutive decreases, Nigeria’s headline inflation rate rose to 32.70% in September 2024, up from 32.15% in August, representing a month-on-month increase of 0.55%.
According to the National Bureau of Statistics (NBS) Consumer Price Index (CPI) report, this increase in inflation was driven by rising transportation costs and food prices.
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