The naira is among the 10 worst-performing currencies globally, according to a Bloomberg report. Experts point to poor economic policies, dollar shortages, and unstable oil prices as key reasons for the naira’s devaluation, despite recent reforms aimed at liberalizing Nigeria’s foreign exchange market.
Nigeria’s local currency, the naira, has been ranked among the 10 worst-performing currencies globally, according to a report by Bloomberg. The sharp decline of the currency, along with other African currencies like the Zambian kwacha and the Angolan kwanza, is largely attributed to a combination of economic challenges, unstable commodity prices, and severe dollar shortages.
Economic experts argue that while oil prices play a significant role, the root cause of the naira’s performance lies in poor currency management and imbalanced monetary policies. Keonethebe Bosigo, a portfolio manager at Mazi Asset Management, highlighted that while oil prices are a major factor, the real issue stems from the failure to allow the naira to adjust, leading to its overvaluation and a subsequent loss of confidence in the currency.
“The problem isn’t just oil prices,” Bosigo said, “It’s about poor currency management. The currency was overvalued for too long, which eroded trust in the currency and led to its current state.”
Economic data suggests that the Nigerian currency should be trading closer to N1,100 per dollar. However, at the close of trading on Friday, it was valued at N1,541 per dollar, reflecting a much larger gap. This undervaluation is compounded by ongoing dollar liquidity issues and tightening banking regulations, contributing to the currency’s prolonged fragility.
Irmgard Erasmus, an economist at Oxford Economics, further commented on the naira’s plight, stating, “Despite efforts by the government to liberalize the foreign exchange market, the currency remains under intense pressure due to the slow pace of reforms and ongoing issues around liquidity and dollar supply.”
Erasmus added that while some inroads have been made since President Bola Tinubu’s victory in 2023, hard-currency supply challenges persist, undermining confidence in the local currency. Declining Brent crude prices have only worsened the situation, putting further strain on Nigeria’s economy.
In June 2023, the Central Bank of Nigeria (CBN) attempted to stabilize the market by unifying multiple FX rate systems into a single investors’ and exporters’ (I&E) window. However, this move has yet to yield the desired results, with the Nigerian currency continuing to experience significant volatility.
Why Nigeria Needs Urgent Reforms to Salvage the Naira
Experts agree that without significant policy changes and improved access to dollar liquidity, the future of the naira remains uncertain. A unified FX system and improved currency management are necessary steps for stabilizing Nigeria’s economy, but slow reforms and inconsistent policies continue to dampen any progress. For now, the naira remains one of the weakest currencies globally, reflecting deep economic challenges that require urgent attention.
