The Nigerian naira has been characterized by the World Bank as one of the worst-performing currencies in Africa.
According to the report, it has lost nearly 40 percent of its value against the US dollar since a devaluation in mid-June.
The global bank’s report, titled ‘Africa’s Pulse: An analysis of factors influencing Africa’s economic future (October 2023 | Volume 28),’ reveals that this year, the Nigerian naira and the Angolan kwanza are among the least successful currencies in the region, both experiencing a year-to-date depreciation of nearly 40 percent.
According to the report, “The weakening of the naira was triggered by the central bank’s decision to remove trading restrictions on the official market.
“For the kwanza, it was the decision of the central bank to stop defending the currency as a result of low oil prices and greater debt payments.”
The World Bank report identifies several other currencies that have experienced significant losses in 2023, including South Sudan (33 percent), Burundi (27 percent), the Democratic Republic of Congo (18 percent), Kenya (16 percent), Zambia (12 percent), Ghana (12 percent), and Rwanda (11 percent).
The report clarifies that in June 2023, the Central Bank of Nigeria instructed Deposit Money Banks to eliminate the rate cap on the naira within the official Investors and Exporters’ foreign exchange market window, allowing the naira to freely float against the dollar and other global currencies. Since then, the naira has depreciated from N473.83/$ to approximately N800/$ officially.
The World Bank notes that this situation persisted from March 2020 until June 2023, resulting in a widening gap between the parallel and official exchange rates of the naira.
Furthermore, the bank highlights a deceleration in Nigeria’s growth rate, from 3.3 percent in 2022 to 2.9 percent in 2023. This is attributed to the country’s oil production remaining below OPEC quotas due to capacity issues and lower international oil prices.
Despite non-oil economic activity, particularly in industry and services, supporting growth, policy actions such as the removal of fuel subsidies and the unification of exchange rates may be exerting short-term pressure on these activities.
The report indicates that weak business confidence and rising input costs are contributing to a contraction in activity, with business confidence showing signs of decline in Nigeria. Activity in Nigeria’s manufacturing and services sectors contracted in August.
The World Bank anticipates that the recent reforms implemented by the incoming administration of Bola Tinubu will temporarily impact the purchasing power of households.
These reforms include the removal of fuel subsidies and the devaluation and unification of the exchange rate system, resulting in a significant increase in petroleum prices since the end of May.
While these measures aim to enhance the nation’s fiscal and external accounts, their short-term inflationary effects may erode the purchasing power of households and weigh on economic activity.
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